Venture capital refers to long-term risk capital provided to finance high-risk, high-growth startups. Venture capitalists are professional investors who pool resources to assist entrepreneurs in the early years of their projects. Venture capital comes in the forms of debt, equity, or preferred stock. The venture capital process involves deal origination, screening, evaluation, deal structuring, and post-investment activities like exits through IPO, mergers and acquisitions, share buybacks, or sales to strategic investors. Reliance Venture Asset Management is an example of an Indian corporate venture capital firm that follows a multi-stage investment process.
2. Venture Capital
• Meaning – VC is long term risk capital to finance
high technology projects which involve risks but at
the same time has strong potential for growth.
• Venture capitalist are professional investors , who
pool their resources including managerial abilities to
assist new entrepreneurs in early years of project.
• Definition – “A financing institution which joins an
entrepreneur as a co-promoter in a project & share
the risks & rewards of enterprise.”
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3. Forms of Venture Capital
investments
Debt
• Loan contract
between the business
and the venture capital
firm high interest rates
Equity
• Venture capital firm
purchases an
ownership share of the
business generally in
the form of private
placement stock
Preferred stock
• The favored type of venture
capital investment provides
interest yields and seniority
to capital in the event that the
firm fails, but with an equity
interest if the firm succeeds.
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4. Features of Venture Capital
• High tech areas.
• Long term start up.
• Return is possible only when share of
company is sold at market price.
• Also participate in management affairs of
business.
• Reduce uncertainties.
• Encourages, nurture and help the entrepreneur
grow.
• Act as co-partner.
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6. Exit
IPO Promoters buyback Trade sale
Buy back of equity by
company
Post investment activities
Deal structuring
Evaluation
Screening
Deal origination
Venture Capital Process
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7. Venture Capital Exit Options
7
Initial public
offer(IPOs)
Mergers &
Acquisition
Shares
buy back
Sale to Other
Strategic
Investor
sales in OTC
market
management
buy outs
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8. IPO
• Also called as Stock Market launch.
• Involves a private company offering its shares
to the public for purchase for the first time.
• Referred to as taking a company public.
• The original investors in the private company
can make fortunes because the new stock is
worth much more than their original
investments.
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9. Mergers & Acquisitions
• A merger is a combination of two companies to form
a new company.
• An acquisition is the purchase of one company by
another in which no new company is formed.
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10. Shares Buyback
• The promoters buy back VC stake at
predetermined price and keep the ownership
control with him.
• VC consider it as an exit option only when
promoters are in position to mobilise funds for
buy back of equity held by the venture
investors.
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11. Sales to other Strategic Investors
• VC sells his stake to the strategic buyer who
already owns a business or has plans to enter
target industry.
• The benefit is typically liquidity because if VC
sell the company to a strategic acquirer he/she
might be able to sell most or all of their stock.
• The acquirer may or may not retain the
management team, and may or may not make
substantial changes in the company's operations,
staff, and business lines.
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12. Sales in OTC Market
• OTC(Over-The-Counter) can be used to refer to stocks
that trade via a dealer network as opposed to on a
centralized exchange.
• OTC markets are typically bifurcated into the customer
market – where dealers trade with their clients such as
corporations and institutions – and the interdealer
market, where dealers trade with each other.
• The price a dealer quotes to a client may very well
differ from the price it quotes to another dealer.
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13. Management Buyouts
• A transaction where a company’s management team purchases
the assets and operations of the business they manage.
• A management buyout (MBO) is appealing to professional
managers because of the greater potential rewards from being
owners of the business rather than employees.
• The financing required for an MBO is usually a combination of
debt and equity that is derived from the buyers, financiers and
sometimes the seller.
• The advantage of MBO is that as the existing managers are
acquiring the business, they have a much better understanding of
it and there is no learning curve involved.
• Another advantage is that the company’s debt load may be
lower, giving it more financial flexibility.
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14. Reliance Venture Asset
Management Ltd.
• Launched in 2006.
• A corporate venture capital company based
in Mumbai.
• Promoted by the Reliance ADA Group.
• Ranked 30th in the Red Herring Top 100
Global Venture Capital Firms in 2009-2010.
• Focus is both - on established as well as
emerging or disruptive technologies and
business model.
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15. Mission:
• To help build businesses that not only deliver
outstanding financial value but also emerge as
category leaders.
Vision:
• To build a global enterprise for all our
stakeholders.
• A great future for our country.
• To give millions of young Indians the power to
shape their destiny.
• The means to realize their full potential.
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16. Investment Process
Stage 0- Business Plan Submission
The business plan should contain the following:
• A two page Executive Summary
• 5 – 6 slides covering business offering, team, top level financials, market
opportunity and competitive advantage
Stage 1- Initial Meeting with Entrepreneur / Team
20-25 slides presentation, which clearly covers the following:
• Product / Solution Offering
• Market Opportunity
• Management Team
• Technology Overview
• Business Model
• Product / Solution roadmap
• Financials
• Competition Analysis2/12/2015 16
17. Stage 2- Investment Opportunity Evaluation
• Detailed Business Case
• Face to face meetings with key personnel
• Formal Presentation to broader team
• Identifying key hires and organization structure
• Develop mutually agreed upon milestones
Stage 3- Post Investment Roadmap
• Working closely to initiate and augment the business.
• Regularly monitor the progress and issues, if any.
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18. Sequans Communications
• Founded in 2003.
• A leading developer and supplier of single-
mode LTE chipset solutions that are highly
cost and power efficient.
• Two distinct LTE product lines:
1) Streamrich LTE for feature-rich mobile computing and
home/portable router devices
2) Streamlite LTE for cost-sensitive M2M devices and the
Internet of Things.
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19. RVAM & Sequans Communications
• RVAM entered venturing along with investors like
Alcatel Lucent, Motorola, Societe General Asset
Management, Swiss Com, CDC Enterprises, Add
Partners, Cap-Decisif, Kennet Venture Partners,
Vision Capital and I-Source Gestion, in 2007 with an
average of about $2 per share.
• RVAM exits in Sequans Communications in 2011 by
entering in IPO in New York Stock Exchange.
• RVAM sold its share for about $8 giving a return of
close to $6 a share.
• Share price as on 29 sept. 2014 is $2.03
2/12/2015 19Source: www.livemint.com
20. • Revenue of $93.7 million in 2011 increased
37% over 2010 revenue.
• Revenue of $5.1 million increased 13%
compared to the first quarter of 2014.
• Its value at the time of exit was 285.95M
• Its valve as on 26 sept 2014 is 94.77M
C:UsersuserDesktopFinal Prospectus.htm
2/12/2015 20Source: www.marketwatch.com
