By: - Paresh Mhatre(8074) & Hemanshu Koradia(8064)

Gist: Introduction to Venture Capital Features of Venture Capital Methodologies and Procedure for Venture Stages of Financing Financial Analysis Types of Venture Capital Benefits of Entrepreneurs Advantages and Disadvantages Case Study and Conclusion

Introduction & Features: History

Scenario

Definition and Features

Why Company needs Financing:For starts-up or growing companies as well as those facing a major change, financing is one the key business issues. New capital is needed e.g. of

Product Development

Market Penetration

Investment Finance

Working Capital

The first venture capital Financing in India ICICI Venture Capital. Started in the 1998 by joint venture between ICICI and UTI. UTI Launched venture capital unit scheme (VECAUS-I) to raise finance in 1990. SBI and Canara Bank are also involved in Venture Capital Finance. They provide their equity capital or conditional loans

Providing seed, start up and first stage financing and also funding expansion of companies that have already demonstrated their business but so not yet have access to the public securities market or to credit oriented institutional funding sources. - By. Jame Koloski Morries

Features: Supporting of Entrepreneurial Talent by providing Finance,

Providing Business Management Skills,

Consist of High Risk and High Return based financing,

Reduces the financial burden of the business concern at the initial stage.

A Return in form of Capital Gain,

Methodologies and Procedures:Selection of Investment Stages of Financing Financial Analysis

Structuring the Deal

Aftercare

Valuation of Portfolio
Mode of Compensation

Quasi-Equity Investment

S T A G E S O F F I N A N C E

SEED CAPITAL

Applied research phase where there is just Idea or Concept Risk is Extremely High

Commercial Manufacturing Commenced Start-Up Risk is very High Company earns profit but not too Big for IPO Time Scale is shorter Development Capital Bridge or Expansion Buyouts and Buy-ins Turnaround

Second Round

Later Stage

Stages and there characteristics:Financial Stage Period Taken Seed Money 7 to 10 years Start Up 5 to 9 years First Stage 3 to 7 years

Risk Involved

Extreme

Very High

High

Activity to be financed

R&D for product development

Initializing Operation

Start Commercials production and Marketing

Financial Stage Period Taken

Second Stage

Third Stage

Forth Stage

3 to 5 years

1 to 3 years

1 to 3 years

Risk Involved

Activity to be financed

Significantly High Expand market and growing working Capital need

Medium Market expansion acquisition & product development for profit making company

Low

Facilitating Public Issue

Financial Analysis:-

Conventional Venture Capitalist Method

The First Chicago Method

Revenue Multiplier Method

Questions while Investing:1) Where is the company now? 2) What is the product or service? 3) What is your market? 4) How will you reach the market? 5) Who will be you competing against? 6) How will your product be produced? 7) Who are the people? 8) What are your financial projection? 9) How much money you will need? 10) What are the RISKS?

Generally does not exceed 49% of the total Equity

Overall Controls remain with the entrepreneur.

Capitalist earn capital gains when the shares are disposed off

Royalty Charges

Normally ranges between 215% at the cost of financing.

High interest rate around 20-25%.

Interest Payment

This payments are made once the firm secure its commercial confidence, strength and viability in the market.

Income Notes

It is a compromise between conventional loan and conditional Loan

Participating Debentures

Operation below minimum level No interest Operation above minimum level Low Interest Rate Operation in full Swing High Interest Rate

Advantages

Disadvantages

Alternatives for Venture Capital: Bootstrapping

Alternative

Angel Investors

Sweat Equity

Case Study: Gujarat Venture Finance Limited and Saraf foods limited

Bibliography: www.wikipedia.com www.gvfl.com Financial Management

By: - M Y Khan & P K Jain