Professional Documents
Culture Documents
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Expansion/Development Stage
Working Capital requirement Expansion Ipo
Acquisition/Leveraged Buyouts
Traditional mergers & acquisition Leveraged Buy Outs Going Private
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Seed Capital
Capital requires for proving concept/Testing
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Start up capital
Capital requires for starting initial marketing & starting operations, yet no commercial sale has started
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Expansion/Development Stage
Expansion/Development Stage
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Expansion
Rapid sales with BEP achievement & positive profits
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Ipo
Bridge financing for taking company IPO
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Acquisition/Leveraged Buyouts
Acquisition/Leveraged Buyouts
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Public equity market Venture Capital Market Informal Risk Capital Market
Public equity market is accessible only to high potential & proven business entities. Venture Capitalists are funding in expansion stage. by way of equity participation/investment. Rest of the segment is obtaining funding form the market consist of angle (individual) investors is known as informal risk capital market
The informal risk-capital market is a group of wealthy investors known as business angels Who are looking for equity investment opportunities Business angles provides funds for all market but particularly for Start up stage funding Venture capital market is a market consist of formal firms providing funds for start up/development/expansion/buy outs. The equity market is a market providing funds for highly potential /proven business.
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Concept emerged in U.S in 1970,in u.k during early 80s, in Japan in mid 80s and around 1987 in India. It is important source of capital for SMEs since small investors are afraid of funding due to higher risk involved. Venture capitalist provide funding in form of equity, quasi equity, debt.
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VC investments are generally made in Cash in exchange of shares invested in company/firm. VC Firms are generally established by professionals having expertise in a particular domain, generally consist of as fund of funds, financial institutions, endowments pension funds and banks. To compensate for high risk taken by the VCs they expect higher rate of return in form of capital appreciation over a period of time.
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According to International Finance Corporation (IFC), venture capital is equity or equity featured capital seeking investment in new ideas, new companies, new production, new process or new services that offer the potential of high returns on investments. As defined in Regulation 2(m)of SEBI (Venture Capital Funds) Regulation , 1996 "venture capital fund means a fund established in the form of a company or trust which raises monies through loans, donations issue of securities or units as the case may be, and makes or proposes to make investments in accordance with these regulations.
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High risk & rewards by selective investments according to VCs preference Different approach related to location, nature of business, size of investment, industry specialization, stage of company, involvement in companies activity Rejection of proposal by VSs Quality & depth of commitment from existing management Appropriate Investment Structure As well as the requirement of being an attractive business opportunity Exit Opportunity
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current and potential skills gaps Financial projections with research undertaken to support these assumptions. What if? questions-Contigency plan envisioned that more than one round of financing will be required Possible exit strategies for the investors may include floating the company on a stock exchange or selling the company to a trade buyer
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Venture Capital-Advantages
Long term investment Business partner sharing risk & reward both. Provides practical advise & other assistance for nurturing the business Provides readymade network for recruitment of key personnel, international market, introduction of strategic markets, co- investment with other VSs Providing additional capital for growth & expansion in addition to initial funding. The most important difference between a venture capitalist and conventional investors and mutual funds is that he is a specialist and lends management support and also helps in:
Financial and strategic planning Recruitment of key personnel Obtain bank and other debt financing Introduction to strategic partners and acquisition targets in the region Regional expansion of manufacturing and marketing operations Obtain a public listing
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Disadvantages of VCs
Venture capitalists behave like sheep investing only in whatever industry happens to be the flavor of the month. Everyone else need not apply Entrepreneur is at risk of revealing business secrets to ingenuin VCs push cash short companies to the brink of bankruptcy Many a times VCs destroy the founding teams motivation and commitment with stringent norms shifts the founding teams focus away from selling to spending money
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Thank You
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