Venture capital ...Its financing process...why new firms need seed financing ...etc

1. VENTURE CAPITAL
Sukla paul
SOMS
IIEST , SHIBPUR
Presented By

2. What is venture capital?
 ‘Venture Capital’ is an important source of
finance for those small and medium- sized firms,
which have very few avenues for raising funds..
Venture capital is long
term risk capital to finance
high technology projects
which involve risk but at the
same time has strong
potential for growth.

3. WHY FIRM NEED FINANCING …
 Although new business firm may possess a huge
potential for earning large profits in the future and
establish itself into a larger enterprise. But the
common investors are generally unwilling to invest
their funds in them due to risk involved in these types
of investments. In order to provide financial support to
such entrepreneurial talent and business skills, the
concept of venture capital emerged. In a way, venture
capital is a commitment of capital, or shareholdings,
for the formation and setting-up of small scale
enterprises at the early stages of their lifecycle.

5. FEATURES OF VENTURE
CAPITAL
 For New Entrant:
 Continuous Involvement:
 Mode of Investment:
 Long-term Capital :
 Hands-On Approach:
 High risk- return Ventures:
 Source of Finance:
 Liquidity:

6. Venture Capital Funding Process

7. Stages of Financing Offered in Venture Capital :
 There are typically six stags of financing offered in Venture Capital, that roughly
correspond to these stages of a company‘s development:
1) Seed Money: Low – level financing needed to prove a new idea (often provided by
“angle investors”).

2) Start-up: Early stage firms that need funding for expenses associated with marketing
and product development.

3) First- Round: Early sales and manufacturing funds.

4) Second – Round: Working capital for early stage companies that are selling product,
but not yet turning a profit.

5) Third- Round: Also called Mezzanine financing, this is expansion money for a newly
profitable company.

6) Fourth- Round: Also called bridge financing, 4th round is intended to finance the
“going public” process.

8. Dimensions of Venture Capital
 Venture capital in India is available in four forms:
1) Equity Participation: The venture capital finances up to 49% of the equity
capital and the ownership remains with the entrepreneur.
2) Conventional Loan: Under this, a lower fixed rate of interest is charged to
the unit till its commercial operation. After normal rate of interest is paid, loan
is to be repaid as per the agreement.
3) Conditional Loan: A conditional loan is repayable in the form of royalty
ranging between 2 and 15% after the venture is able to generate sales and no
interest is paid on such loans.
4) Income Notes: The income note combines the features of conventional and
conditional loans in a way that the entrepreneur has to pay both interest and
royalty on sales at low rates.

9. Structure of Venture Capital Firms and Funds

10. ADVANTAGES OF VENTURE CAPITAL
 Venture capital is popular in different parts of the country as it plays a
significant role in fostering industrial development by exploiting vast and
untapped potentialities. The advantages of securing a VC are that:
 Even in the situation when entrepreneur having a good project idea but no
previous entrepreneurial track record to leverage the firm, handles customers
and bankers, venture capital can help the entrepreneurs in successful launch of
their projects.
 Rapid growth of technology across the globe has led to the growth of
technology in India but indigenous technology has been slack due to
unwillingness of the people to take entrepreneurial risks.
 Venture capital has gained importance as it solves the sickness of a company.
 As the venture capitalists are ready to lend their expertise and standing to the
entrepreneur, the local groups and multinational companies can easily enter
into joint ventures.
 Venture capitalists are also helpful to a large number of smaller units under
which they are able to upgrade their technology to meet the demands of the
major industrial units.
 Venture capitalists are also playing a significant role in tapping the potentiality
of service sector. Thus, venture capital is booming to exploit the potential of
Indian economy.

11. DISADVANTAGES OF VC
 Securing a deal with a VC can be a long and complex process.
 Person will be required to draw up a detailed business plan,
including financial projections for which the entrepreneur may
need professional help. Support from his local business link may
be available for this.
 If he gets through the deal negotiation stage, he will have to pay
legal and accounting fees whether or not he becomes successful
in securing funds.
 Since the venture capitalist is taking the risk, the management
control may get out of the entrepreneur.
 He will also be forced to partner the benefits, such as the profit
he got from the business, with the venture capitalist.

12. Problems facing by VC
 Requirement of an experienced management team.
 Requirement of an above average rate of return on
investment.
 Longer payback period.
 Uncertainty regarding the success of the product in
the market.
 Questions regarding the infrastructure details of
production.
 Skills and Training required.
 Time Period.
 Interference in Business:

13. Top cities attracting VC investments:

CITIES SECTORS
Mumbai Software services, BPO, Media,
Computer graphics, Animations,
Finance & Banking
Bangalore IT & Bio-technology
Delhi Software services, Telecom
Chennai IT , Telecom
Hyderabad IT & ITES, Pharmaceuticals
Pune Bio-technology, IT , BPO

14. VC industry wise
segmentation
6.94
7.73
11.5
4.32
27.95
4.82
11.43
12.92
3.36
9.03
Percentage
IT & ITES
Energy
Manufacturing
Media& Ent.
BFSI
Shipping& logistics
Eng.& Const.
Telecom
Healthcare

15. VENTURE
CAPITAL
FUNDING
IN
INDIA

16. VC funding in India
VCFs in India can be categorized into following five
groups:
1) Those promoted by the Central Government controlled development
finance institutions. For example:
- ICICI Venture Funds Ltd.
- IFCI Venture Capital Funds Ltd (IVCF)
- SIDBI Venture Capital Ltd (SVCL)
2) Those promoted by State Government controlled development finance
institutions. :-For example:
- Punjab Infotech Venture Fund
- Gujarat Venture Finance Ltd (GVFL)
- Kerala Venture Capital Fund Pvt Ltd.

17. 3) Those promoted by public banks. :- For example:
- Can bank Venture Capital Fund
- SBI Capital Market Ltd
4)Those promoted by private sector companies. :-For example:
- IL&FS Trust Company Ltd
- Infinity Venture India Fund
5)Those established as an overseas venture capital fund. :-For
example:
- Walden International Investment Group
- HSBC Private Equity
- management Mauritius Ltd

18. Remedies taken for VC
 Reduce the rules and regulations of SEBI.
 Investment made on development of management and
employees through training, improving skills.
 Avoid venture capitalist in interference in Business
activity.
 Increasing market facilities.
 Provide more infrastructure facilities.

19. THE END