Chapter - 23

Venture Capital Financing

Features of Venture Capital
 Equity Participation.
 Long-term Investments.
 Participation in Management.

Venture capitalist combines the qualities of

bankers, stock market investors and
entrepreneur in one.

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VC Development
 Impetus
 Internal context
 External context
 Sustainability

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Stages in Venture Financing
 Early Stage Financing
 Expansion Financing
 Acquisition/Buyout Financing

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Venture Capital Investment Process
 Deal Origination
 Screening
 Evaluation
 Deal Structuring
 Post-investment activity
 Exit

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Methods of Venture Financing
 Equity
 Conditional Loan
 Income Note
 Other Financing Methods
1. Participating Debentures
2. Partially Convertible Debentures
3. Cumulative Convertible Preference Shares
4. Deferred Shares
5. Convertible Loan Stock
6. Special Ordinary Shares
7. Preferred Ordinary Shares
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Disinvestment Mechanisms
 Buybacks
 Initial Public Offerings
 Secondary Stock Markets

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Entrepreneurs’ Role
 Entrepreneurs are drivers of innovations, of job
creation and of economic development.
 Entrepreneurship should be advocated and
supported by the entire business world.
 Entrepreneurs in developed economies consider the
primary contribution of the venture capitalists to be
other than financial.
 Assistance with recruitment, financial planning,
strategic partnering and complex negotiations are
important contributions of VCs.

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Entrepreneurial Requirement
 To build entrepreneurial companies, there is
need
 To develop service infrastructure.
 To reduce bureaucracy with regard to the creation
of small businesses.
 To provide adequate incentives for entrepreneurs
by reforming tax treatment of stock options and
capital gains.
 To reform labour laws that takes into account the
needs and limitations of small businesses.

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Future Prospects of Venture Financing
 Rehabilitation of sick units.
 Assist small ancillary units to upgrade their
technologies.
 Provide financial assistance to people coming
out of universities etc.

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Success of Venture Capital
 Entrepreneurial Tradition.
 Unregulated Economic Environment.
 Disinvestment Avenues.
 Fiscal Incentives.
 Broad Based Education.
 Venture Capital Managers.
 Promotion Efforts.
 Institute Industry Linkage.
 R&D Activities.

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