VENTURE CAPITAL
FINANCING

Venture capital means funds made available for st
artup firms and small businesses with exceptiona
l growth potential.

 New ventures
 Continuous Involvement
 High risk
 Mode of Investment
 Objective-Not to get interest but Capital Gai
n

1. Seed Money:
Low level financing needed to prove a new idea.
2. Start-up:
Early stage firms that need funding for expenses
associated with marketing and product develop
ment.
3. First-Round:
Early sales and manufacturing funds.
4. Second-Round:
Working capital for early stage companies that a
re selling product, but not yet turning a profit .

5. Third-Round:
Also called Mezzanine financing, this is ex
pansion money for a newly profitable com
pany
6. Fourth-Round:
Also called bridge financing, it is intended
to finance the "going public" process

Financial Stag
e
Period (Funds
locked in year
s)
Risk Perceptio
n
Activity to be
financed
Seed Money 7-10 Extreme
For supporting
a concept or ide
a or R&D for pr
oduct developm
ent
Start Up 5-9 Very High
Initializing oper
ations or develo
ping prototype
s
First Stage 3-7 High
Start commerci
als production a
nd marketing

Financial Stag
e
Period (Funds
locked in year
s)
Risk Perceptio
n
Activity to be
financed
Second Stage 3-5 Sufficiently high
Expand market
and growing wo
rking capital ne
ed
Third Stage 1-3 Medium
Market expansi
on, acquisition
& product devel
opment for pro
fit making comp
any
Fourth Stage 1-3 Low Facilitating publ
ic issue

Following are the various methods of vent
ure financing:
 Equity
 Conditional loan
 Income note
 Participating debentures

Following are the advantages of Venture c
apital financing:
 Provide large sum of equity finance
 Successfully attracting a Venture Capital n
ew business
 Economic Growth
 Promoting innovative ideas will scarce fun
ds

Following are the disadvantages of Ventur
e Capital Financing:
 Risky
 Become partner
 Complex Process

VCFs in India can be categorized into follo
wing groups:
 Promoted by central government :
- ICICI Venture Funds Ltd.
- IFCI Venture Capital Funds Ltd.
- SIDBI Venture Capital Ltd (SVCL)

 Promoted by public banks:
- Canbank Venture Capital Fund
- SBI Capital Market Ltd.
 Promoted by state government :
- Punjab Infotech Venture Fund
- Gujarat Venture Finance Ltd (GVFL)
- Kerala Venture Capital Fund Pvt. Ltd.

 Venture capital firms typically source the majority
of their funding from large investment institutions
.
 Investment institutions expect very high ROI
 VC’s invest in companies with high potential wher
e they are able to exit through either an IPO or a
merger/acquisition.
 Their primary ROI comes from capital gains altho
ugh they also receive some return through divide
nd.

CITIES SECTORS
MUMBAI Software services, BPO, Media, Co
mputer graphics, Animations, Fina
nce & Banking
BANGALORE All IP led companies, IT & ITES, B
io-technology
DELHI Software services, ITES , Telecom
CHENNAI IT , Telecom
HYDERABAD IT & ITES, Pharmaceuticals
PUNE Bio-technology, IT , BPO

 The regulatory, tax and legal environment should play an e
nabling role as internationally venture funds have evolved i
n an atmosphere of structural flexibility, fiscal neutrality an
d operational adaptability.
 Resource raising, investment, management and exit should
be as simple and flexible as needed and driven by global tr
ends.
 Venture capital should become an institutionalized industry
that protects investors and investee firms, operating in an
environment suitable for raising the large amounts of risk c
apital needed and for spurring innovation through start-up f
irms in a wide range of high growth areas.

 VC can help in the rehabilitation of sick units.
 VC can assist small ancillary units to upgrade
their technologies.
 VCFs can play a significant role in developing
countries in the service sector including touris
m, publishing, health care etc.
 They can provide financial assistance to peopl
e coming out of universities, technical institu
tes, etc thus promoting entrepreneurial spirits
.

By sectors -
o Banking & financial services
o Customer services
o Energy
o Engineering
o Hospitality
o Internet
o IT/ITES
o Logistics
o Manufacturing
o Textiles