Venture capital financing

1. Venture Capital
Financing
BY :- AASTHA CHAUDHARY 15/IMB/001
ABHAY PRAKASH DUBEY 15/IMB/002

2. What isVenture Capital?
• It is the money provided by an outside investor to finance a new,
growing, or troubled business.The venture capitalist provides the
funding knowing that there’s a significant risk associated with
the company’s future profits and cash flow. Capital is invested in
exchange for an equity stake in the business rather than given as
a loan.
• Venture Capital is the most suitable option for funding a costly
capital source for companies and most for businesses having
large up-front capital requirements which have no other cheap
alternatives.

3. Features ofVenture Capital investments
1) Equity Participation
Venture financing is actual or potential equity participation through direct
purchase of shares, options or convertible securities.
The objective is to make capital gains by selling-off the investment, once the
enterprise becomes profitable.

4. 2) Long-term Investment
Venture financing is a long term, illiquid investment; it is not repayable on
demand. It requires long-term investment attitude that necessitates the
venture capital firms to wait for a long period, say 5-10 years, to make large
profits.
3) Participation in management
Venture financing continuing participation of the venture capitalist in the
management of the entrepreneur’s business.This hands on management
Approach helps him to protect and enhance his investment by actively
involving and supporting the entrepreneur. More than finance, technology,
planning and management skills to new firm.

5. Advantages ofVenture Capital
• They bring wealth and expertise to the company
• Large sum of equity finance can be provided
• The business does not stand the obligation to repay the money
• In addition to capital, it provides valuable information, resources, technical
assistance to make a business successful

6. Disadvantages ofVenture Capital
• As the investors become part owners, the autonomy and control of the
founder is lost
• It is a lengthy and complex process
• It is an uncertain form of financing
• Benefit from such financing can be realized in long run only

7. Methods ofVenture capital financing
• Equity
• participating debentures
• conditional loan

8. Types ofVenture Capital funding
• The various types of venture capital are classified as per their applications at
various stages of a business.The three principal types of venture capital are
early stage financing, expansion financing and acquisition/buyout financing.
The venture capital funding procedure gets complete in six stages of financing
corresponding to the periods of a company's development
• Seed money: Low level financing for proving and fructifying a new idea
• Start-up: New firms needing funds for expenses related with marketingand
product development

9. • First-Round: Manufacturing and early sales funding
• Second-Round:Operational capital given for early stage companies which are
selling products, but not returning a profit
• Third-Round: Also known as Mezzanine financing, this is the money for
expanding a newly beneficial company
• Fourth-Round: Also called bridge financing, 4th round is proposed for financing
the "going public" process
CONTD..

10. A) Early Stage Financing:
• Early stage financing has three sub divisions seed financing, start up
financing and first stage financing.
• Seed financing is defined as a small amount that an entrepreneur receives
for the purpose of being eligible for a start up loan.
• Start up financing is given to companies for the purpose of finishing the
development of products and services.
• First Stage financing: Companies that have spent all their starting capital
and need finance for beginning business activities at the full-scale are the
major beneficiaries of the First Stage Financing.

11. B) Expansion Financing:
• Expansion financing may be categorized into second-stage financing, bridge
financing and third stage financing or mezzanine financing.
• Second-stage financing is provided to companies for the purpose of
beginning their expansion. It is also known as mezzanine financing. It is
provided for the purpose of assisting a particular company to expand in a
major way. Bridge financing may be provided as a short term interest only
finance option as well as a form of monetary assistance to companies that
employ the Initial Public Offers as a major business strategy.

12. C) Acquisition or Buyout Financing:
• Acquisition or buyout financing is categorized into acquisition finance and
management or leveraged buyout financing. Acquisition financing assists a
company to acquire certain parts or an entire company. Management or
leveraged buyout financing helps a particular management group to obtain
a particular product of another company.

13. The process of venture capital financing
The venture capital activity is a sequential process involving the following six
steps:
Deal origination
Screening
Evaluation
Deal structuring
Post-investment activity
Exit Plan

14. Deal Origination
• In Deal Origination there is a continuous flow of deals is essential for venture
capital business. Deal may originate in various ways :(i) Referral System (ii)
Active search and (iii) Intermediaries. Referral system is an important source
of deals. Deals may be referred toVCF by their parent organizations, trade
partners, industry associations, friends, etc.Yet important source of deal
flow is the active search through networks, trade fairs, conferences.A third
source used by venture capitalist in developed countries like USA, is certain
intermediaries who matchVCF and the potential entrepreneurs.

15. Screening
Venture capitalist in his endeavour to choose the best ventures first of all
undertakes preliminary scrutiny of all projects on the basis of certain broad
criteria, such as technology or product, market scope, size of investment,
geographical location and stage of financing.
Venture capitalists in India ask the applicant to provide a brief profile of the
proposed venture to establish prime facie eligibility. Entrepreneurs are also
invited for face-to-face discussion for seeking certain clarifications.

16. Evaluation
• After a proposal has passed the preliminary screening, a detailed evaluation of the
proposal takes place. A detailed study of project profile, track record of the
entrepreneur, market potential, technological feasibility future turnover,
profitability, etc. is undertaken.
• Venture capitalists in Indian factor in the entrepreneur’s background, especially in
terms of integrity, long-term vision, urge to grow managerial skills and business
orientation.They also consider the entrepreneur’s entrepreneurital skills, technical
competence, manufacturing and marketing abilities and experience. Further, the
project’s viability in terms of product, market and technology is examined.
• Besides, venture capitalists in India undertake thorough risk analysis of the
proposal to ascertain product risk, market risk, technological and entrepreneurial
risk. After considering in detail various aspects of the proposal, venture capitalist
takes a final decision in terms of risk return spectrum, as brought in figure 31.1.

17. Deal Negotiation
• Once the venture is found viable, the venture capitalist negotiates the terms
of the deal with the entrepreneur.This it does so as to protect its interest.
Terms of the deal include amount, form and price of the investment.
• It also contains protective covenants such as venture capitalists right to
control the venture company and to change its management, if necessary,
buy back arrangements, acquisition, making IPOs.Terms of the deal should
be mutually beneficial to both venture capitalist and the entrepreneur. It
should be flexible and its structure should safeguard interests of both the
parties.

18. Post Investment Activity
• Once the deal is financed and the venture begins working, the venture
capitalist associates himself with the enterprise as a partner and
collaborator in order to ensure that the enterprise is operating as per the
plan.
• The venture capitalists participation in the enterprise is generally through a
representation in the Board of Directors or informal influence in improving
the quality of marketing, finance and other managerial functions. Generally,
the venture capitalist does not meddle in the day-to-day working of the
enterprise, it intervenes when a financial or managerial crisis takes place.

19. Exit Plan
• The last stage of venture capital financing is the exit to realise the
investment so as to make a profit/minimize losses.The venture capitalist
should make exit plan, determining precise timing of exit that would depend
on an a myriad of factors, such as nature of the venture, the extent and type
of financial stake, the state of actual and potential competition, market
conditions, etc.
• At exit stage of venture capital financing, venture capitalist decides about
disinvestments/realisation alternatives which are related to the type of
investment, equity/quasi-equity and debt instruments.Thus, venture
capitalize may exit through IPOs, acquisition by another company, purchase
of the venture capitalist’s share by the promoter and purchase of the
venture capitalist’s share by an outsider.

20. Venture Capital
Investment Process
Market Product
Entrepreneurial
(Managerial)
Product
Expected
Return
Expected
Return
Decision
Screening
Evaluation
Approval

21. Examples of venture capital funding
• Pepperfry.com, India’s largest furniture e-marketplace, has raised USD100
million in a fresh round of funding led by Goldman Sachs and Zodius
Technology Fund. Pepperfry will use the funds to expand its footprint inTier
III andTier IV cities by adding to its growing fleet of delivery vehicles. It will
also open new distribution centres and expand its carpenter and assembly
service network.This is the largest quantum of investment raised by a sector
focused e-commerce player in India.

22. Examples of venture capital funding
• Kohlberg Kravis & Roberts (KKR), one of the top-tier alternative investment
asset managers in the world, has entered into a definitive agreement to
invest USD150 million (Rs 962crore) in Mumbai-based listed polyester
maker JBF Industries Ltd.The firm will acquire 20% stake in JBF Industries
and will also invest in zero-coupon compulsorily convertible preference
shares with 14.5% voting rights in its Singapore-based wholly owned
subsidiary JBF Global Pte Ltd.The fundingprovided by KKR will help JBF
complete the ongoing projects.

23. Conclusion:
Considering the high risk involved in the venture capital investments
complimenting the high returns expected, one should do a thorough study of
the project being considered, weighing the risk return ratio expected. One
needs to do the homework both on theVenture Capital being targeted and on
the business requirements.

25. India'sTop 5 Early StageVC Firms
• HelionVenture Partners
• Accel Partners
• BlumeVentures
• Sequoia Capital India
• NexusVenture Partners

26. HelionVenture Partners
• Investing in technology-powered and consumer service businesses, Helion
Ventures Partners is a $605 Mn Indian-focused, an early to mid-stage
venture fund participating in future rounds of financing in syndication with
other venture partners.
• PeopleYou Should Know: Sandeep Fakun, Kanwaljit Singh.
• Investment Structure: Invests between $2 Mn to $10 Mn in each company
with less than $10 Mn in revenues.
• Industries: Outsourcing, Mobile, Internet, Retail Services, Healthcare,
Education and Financial Services.
• Startups Funded:Yepme, MakemyTrip, NetAmbit, Komli,TAXI For
Sure,PubMatic.

27. Accel Partners
• Accel Partners founded in 1983 has global presence in Palo Alto, London ,
NewYork, China and India.Typical multi-stage investments in internet
technology companies are made by Accel partners.
• PeopleYou Should Know: Subrata Mitra, Prashanth Prakash and
Mahendran Balachandran
• Investment Structure: Invests between $0.5 Mn and $50 Mn in its portfolio
companies.
• Industries: Internet and Consumer Services, Infrastructure, Cloud -Enabled
Services, Mobile and Software.
• Startups Funded: Flipkart, BabyOye, Freshdesk, Book My
Show, Zansaar,Probe, Myntra, CommonFloor.

28. BlumeVentures
• Venture capital firm, BlumeVenture Advisor funds early-stage seed,
startups, pre-series A, series B and late stage investments. Blume backs
startups with both funding as well as active mentoring and support.
• PeopleYou Should Know: Karthik Reddy and Sanjay Nath.
• Investment Structure: Provides seed funding investments between $0.05
Mn – $0.3 Mn in seed stage. Also, provides follow-on investments to
portfolio companies ranging from $.5Mn to $1.5Mn.
• Industries: Mobile Applications,Telecommunications Equipment, Data
Infrastructure, Internet and Software Sectors, Consumer Internet, Media,
Research and Development
• Startups Funded: CarbonClean Solutions, EKI Communications, Audio
Compass, Exotel, Printo.

29. Sequoia Capital India
• Sequoia Capital India specializes in investments in startup seed, early, mid,
late, expansion, public and growth stage companies.
• PeopleYou Should Know: Shailesh Lakhani and Shailendra Singh.
• Investment Structure: SCI invests between $100,000 and $1 Mn in seed
stage, between $1 Mn and $10 Mn in early stage and between $10 Mn and
$100 Mn in growth stage companies.
• Industries: Consumer, Energy, Financial, Healthcare, Outsourcing,
Technology.
• Startups Funded: JustDial, Knowlarity, Practo, iYogi, bankbazaar.com

30. NexusVenture Partners
• NexusVenture Partners is a venture capital firm investing in early stage and
growth stage startups across sectors in India and US.
• PeopleYou Should Know: Suvir Sujan and Anup Gupta
• Investment Structure: Invests between $0.5 Mn and $10 Mn in early growth
stage companies. Also, makes investments upto $0.5 Mn in their seed
program.
• Industries: Mobile, Data Security, Big Data analytics, Infrastructure, Cloud,
Storage, Internet, Rural Sector, Outsourced Services, Agribusiness, Energy,
Media, Consumer and Business services,Technology.
• Startups Funded: Snapdeal, Housing, Komli, ScaleArc, PubMatic,Delhivery.

32. “A Study onVenture Capital Financing for Micro Small & Medium
Enterprises (Msme) in India”
Prof.B.Vijayalakshmi - Head of the department, Sri Padmavathi Mahila
Viswavidyalaya, Tirupati.
&
Dr. K.Tirumalaiah - Associate Professor, SV Colleges,Tirupati
Mrs.W. R. Sony - Assistant Professor, SV Colleges,Tirupati

33. Abstract
• The venture capital (VC) finance focuses on companies, which are not listed
in a stock exchange.TheVC- finance is usually equity finance, which can be
directly placed on the share capital or through mezzanine finance form
indirectly to shares.Venture capital investment is timely limited, in general
for 3 - 5 years.Venture capital financier has a target to bring with capital also
the know- how which investor supplies to the company in a form of
consulting or advising the company.The venture capital investment is based
on the shareholders agreement between investor and the company.The
agreement includes of the pricing principles of the shares from the start
phase to the exit stage. ABSTRACT KEYWORDS : MSME, F

34. “Study ofVenture Capital In India”
Author:- Prashant Jadhav

35. • Abstract
In India , a Revolution is ushering in an economy where in major investment are being
made in knowledge based industries with Substantially low investment in land,
building, plant and machinery .The asset backed lending instruments adopted for
hard core manufacturing industries are provided to be inadequate for knowledge
based industries that often start with just Idea.
The only way to finish Such industries is through venture capital.Venture capital is
instrumental is bringing about industrial development for it exploits the vast and
untapped potentialities and promote the growth of the knowledge based industries
worldwide.
In India too it has become popular in different parts of the country.Thus the role of
the venture capitalist is very crucial different and distinguishable to the role of
traditional finance as it deals with others money. In view of globalisation, venture
capital has turned out to be boon to both business and industry.
This report which contains in depth study of venture capital industry in India is made
with an intension to get through all aspects related to the topic and to become able
to make some suggestion at the industry.This report deals with the concept of
venture capital with particular reference to India.The reports include all facts, rules
and regulation regarding venture capital.

36. VENTURE CAPITAL IN INDIA: SECTOR-WISE
ANALYSIS
Pallvi Rani | Assistant Professor | DAV College,
Hoshiarpur
&
Dr. Hitesh Katyal | Principal | Chandigarh Business
School, Landran

37. • ABSTRACT
Venture Capital is money provided by professionals who invest and manage young
rapidly increasing companies that have the probable to develop into significant
economic contributors.The Government of India in an attempt to bring the nation at
par and above the developed nations has been promoting venture capital financing to
new, innovative concepts & ideas.Venture Capitalists in India are biased toward
technology companies with 68.0% of investments made in this sector. Other sectors
include healthcare and education accounting for 9.0% and 7.0% of total investments
respectively.TheVC industry in India has had a somewhat frustrating run.With too
much money chasing too few deals, Indian venture capital is struggling.Venture
Capital firms invested over 206 deals in India during 2013, registering a fall of about 18
percent over the corresponding period a year ago. Of the 184 exits in the Industry, the
technology sector accounted for about 137 of them.This study would be an
exploratory study.Venture Capital Investments in various sectors like Real Estate,
Telecom, InfoTech, Media, Biotech and Pharmacy will also be compared.VC growth in
top sectors will also be talked about.Various Companies that invested in India will
also be contrasted on various factors like size of investments, location and number of
deals.

38. An Overview on “Venture Capital Financing”
in
India
Prof.Viren Chavda,
Lecturer,
N. C. Bodiwala Commerce College,
Ahmedabad, Gujarat India

39. • Abstract:
The concept of venture capital deals with the great amount of financing to
undertake big projects. Venture Capital is money provided by professionals
who invest in rapidly growing companies that have the potential to develop
into significant economic contributors. According to SEBI regulations,
venture capital fund means a fund established in the form of a company or
trust, which enhances capital in the form of money through loans, issue of
securities, donations or and makes or proposes, to make investments in
accordance with these regulations.The funds so collected are available for
investment in potentially highly profitable projects at a high financial risk of
loss. AVenture Capitalist is an individual or a company who provides.
Investment Capital, intellectual management expertise while funding and
running highly innovative & prospective areas of products as well as
services. . In India, presently, there are many institutions which provide
venture capital finance.There is an urgent need for encouragement of risk
capital in India, as this will widen the industrial base of, high tech industries
and promote the growth of technology.This research paper is an aiming to
highlight the issues and challenges faced by Indian venture capital
companies while financing.

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BOOK

41. THANKYOU