Venture Capital and Loan Syndication, the two prominent innovative finance sources are discussed.

1. Venture Capital & Loan Syndication
Innovative Sources of
Finance

2. Innovative Sources

3. • Innovative sources and mechanisms of funding are
non-traditional modes of financing
• Finance is made available to the Business
Organisations breaking the conventions
• All the innovative sources are evolved in response to
the magnified and divergent need for Finance
What are Innovative Sources?

4. • Non – Traditional
• Tailor Made
• Mobility
• Finance on Demand
Why called ‘Innovative’?

5. Venture Capital

6. • Financing a new, growing, or troubled business
• Knowledge of the significant risk associated
• Investment in exchange for an equity stake
• Expects a better-than-average return
Meaning

7. • Money provided by investors to start-up
firms and small businesses with perceived
long-term growth potential and substantially
high risk , in exchange of an equity stake
expecting a better than average return.
Definition

8. • New Business
• Limited Operating History
• No capital market access
• Perceived long term growth potential
Who opt VC?

9. • Not necessarily just one wealthy financier
• Ltd. partnerships with pooled investment capital
• Small group of investors
• Affiliate or subsidiary of a;
1) Large commercial bank
2) Investment bank or
3) Insurance company
Who can be a Venture Capitalist?

10. • Commercially Viable
• Identifiable Market
• Strong Management
• Sustainable Competitive Advantage
What do Venture Capitalist look for?

11. • Participation in Equity
• Long – Term loans
• Participation in Management
• Risky Capital
• Exit Option
Features

12. Financing Equity Returns
Participation in Equity

13. Financing
Equity
Lock – Up Period
Sale of Equity
Long Term Loans

14. Take part in the Board of Directors
Provide Technical/ Technological Assistance
Recruiting Key Executives
Participation in Management

15. Risky Capital

16. Financing
Commercial
Viability
Selling of
Equity
Exit Option

17. The Funding Process
1) Business Plan Submission
2) Introductory Conversation /Meeting
3) Due Diligence
4) Term Sheets and Funding

18. Types of Funding
1) Seed Capital
2) Start-Up Capital
3) Early Stage Capital
4) Expansion Capital
5) Late Stage Capital

19. The ‘Apple’ Story..!

20. Loan
Syndication

21. • Huge financial requirements
• Involvement of greater risk
• Low credit exposure levels
• Mismatching Terms & Conditions
Why loan syndication?

22. • The process of involving Several different lenders in
providing various portions of a loan.
• Borrower requires a large sum of capital that may either
be too much for a single lender to provide, or
• May be outside the scope of a lender's risk exposure
levels.
• Multiple lenders together provides a single loan on
agreed terms and rates through an agent - ARRANGER.
Meaning

23. • Syndicated loan is one that is provided by a group of
lenders and is structured, arranged, and
administered by one or several Institutional Lenders
or investment banks known as arrangers.
Definition

24. • When there is huge requirement for fund,
such as in case of;
1) Mergers
2. Acquisitions and
3) Buyouts
When a Syndicated loan is opted?

25. Borrower Arranger Syndicate
Parties to a Syndicated Loan

26. • Point of Contact
• Monitor
• Postman and Record Keeper
• Paying Agent
Duties of an Arranger

27. Documenting the
Loan

28. • The Borrower appoints the Arranger via a Mandate
Letter
• The content varies according to whether;
1. The Arranger is mandated to use its "best efforts" to
arrange the required facility or
2. If the Arranger is agreeing to "underwrite" the
required facility.
Mandate Letter/ Commitment Letter

29. • The Mandate Letter will usually be signed with a Term
Sheet attached to it.
• The Term Sheet is used to set out the terms of the
proposed financing prior to full documentation.
• It sets out the parties involved, their expected roles and
many key commercial terms
Term Sheet

30. Example :
1. Type of facilities
2. Facility amounts
3. Pricing
4. Term of the loan and
5. Covenant package

31. • Prepared by both the Arranger and the borrower
• Arranger forwards to potential syndicate members.
• Includes description of the borrower's business,
management, accounts, details of the proposed loan etc.
• It is not a public document and all potential lenders that
wish to see it usually sign a confidentiality undertaking.
Information Memorandum

32. • Prepared if the syndicate comes to a conclusion and
borrower is agreed upon
• It sets out the detailed terms and conditions on which
the Facility is made available to the borrower.
• The repayment structure, Interest rates, Covenant
stipulations etc are drafted here
Syndicated Loan Agreement

33. • Made between borrower and arranger
• Borrower has to pay the arranger a specific fee for its
specialised services
• Fee letter contains the rates and the conditions and
structure of such payments.
Fee Letters

34. Term Loan Facility
Revolving Loan Facility
Types of Syndicated Loans

35. Innovative
Features

36. • Realising Capital
• Risk or Portfolio Management
• Regulatory Capital Requirement
• Crystallise a loss
Selling participation in the Loan

37. • Letter of credit
• Swingline Facility
• Overdraft Facility
Other Features..

38. What we’ve
discussed...

39. Questions??