You are on page 1of 11

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.

Financial Management, Ninth Edition © I M Pandey 2


Vikas Publishing House Pvt. Ltd.
VC Development
 Impetus
 Internal context
 External context
 Sustainability

Financial Management, Ninth Edition © I M Pandey 3


Vikas Publishing House Pvt. Ltd.
Stages in Venture Financing
 Early Stage Financing
 Expansion Financing
 Acquisition/Buyout Financing

Financial Management, Ninth Edition © I M Pandey 4


Vikas Publishing House Pvt. Ltd.
Venture Capital Investment Process
 Deal Origination
 Screening
 Evaluation
 Deal Structuring
 Post-investment activity
 Exit

Financial Management, Ninth Edition © I M Pandey 5


Vikas Publishing House Pvt. Ltd.
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
Financial Management, Ninth Edition © I M Pandey 6
Vikas Publishing House Pvt. Ltd.
Disinvestment Mechanisms
 Buybacks
 Initial Public Offerings
 Secondary Stock Markets

Financial Management, Ninth Edition © I M Pandey 7


Vikas Publishing House Pvt. Ltd.
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.

Financial Management, Ninth Edition © I M Pandey 8


Vikas Publishing House Pvt. Ltd.
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.

Financial Management, Ninth Edition © I M Pandey 9


Vikas Publishing House Pvt. Ltd.
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.

Financial Management, Ninth Edition © I M Pandey 10


Vikas Publishing House Pvt. Ltd.
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.

Financial Management, Ninth Edition © I M Pandey 11


Vikas Publishing House Pvt. Ltd.