Venture Capital

Presented by: Chirag Patel Nirav Fruitwala

Concept of Venture Capital

It refers to commitment of capital as shareholding, for the formulation and setting up of small firms specializing in new ideas or new technologies. Also includes providing skill needed to set up the firm, design its marketing strategy and organize and manage it.

Who are Venture Capitalist?

One wealthy financer Limited partnerships that have a fund of pooled investment capital with which to invest in a number of companies VCs may be a small group of investors or an affiliate or subsidiary of a large commercial bank, investment bank, or insurance company that makes investments on behalf of the parent company or outside investors

What exactly Venture Capitalist do?

Finance high technology projects, involving high risk but at same time has strong potential for growth

VC assist new entrepreneurs in the early years of the project. When project reaches profitability, they sell equity holdings at premium.

Origin of Venture Capital

Originated in US soon after second world war In US itself more than 800 VC firms Cos like Apple, Microsoft, Xerox, etc are the beneficiaries of Venture Capital

Features of VC
Usually in form of equity participation. May also take form of convertible debt or long term loan. Investment is made only in high risk & high growth potential projects. Only for new ideas or new technologies and not for enterprise engaged in trading, financial services, R&D, Liaison.

Features of VC
Continuous involvement in business after making investment Disinvest his holdings after project reaches its full potential. Investment usually made in small and medium scale enterprise

VC joins as co-promoter & share the risk and reward of enterprise

Sources of VC fund
Most venture capital firms raise their "funds' from institutional investors, such as pension funds, insurance companies, endowments, foundations, family offices, and high net worth individuals. The investors who invest in venture capital funds are referred to as "limited partners." Venture capitalists, who manage the fund, are referred to as "general partners." The general partners have a fiduciary responsibility to their limited partners.

Funding Process
Business plan submission Introductory meeting Due diligence Term sheets and funding

Types of Funding
Seed capital Startup capital

Early stage capital

Expansion capital Late stage capital

Disinvest Mechanism
Objective of Venture Capitalist is to sell off the investment made by him at substantial capital gains. The disinvestment options available are
Promoters buy back Public issue Sale to another Venture capital funds Sale in OTC market Merger or Acquisition

Advantage of Venture Capital

The venture capitalist is a business partner, sharing both the risks and rewards. Venture capitalists are rewarded by business success and the capital gain. The venture capitalist is able to provide practical advice and assistance to the company based on past experience with other companies which were in similar situations. The venture capitalist also has a network of contacts in many areas that can add value to the company, such as in recruiting key personnel, providing contacts in international markets, introductions to strategic partners, and if needed co-investments with other venture capital firms when additional rounds of financing are required. The venture capitalist may be capable of providing additional rounds of funding should it be required to finance growth

Venture Capital in India

Methods of Venture Capital
Equity Participation: 49% of stakes. Retained till profit. Sold under buy back or in secondary market at profit.
Conventional Loan: Lower fixed rate of interest till unit becomes commercially operational.

Venture Capital in India

Methods of Venture Capital
Conditional Loan: interest free loan is provided during the implementation period but has to pay royalty on sales
Income Notes: Combination of conventional and conditional loans. Interest and royalty is low.

Venture Capital in India

VC division of IDBI Risk Capital & Technology Finance Corporation Ltd. (RCTC) Promoted by ICICI & UTI Technology Development & Information Company of India Ltd (TDICI) Promoted by SBI - SBI Venture Capital Fund Promoted by CBI Infrastructure Leasing

Difference between VC & PE

Company Types: PE firms buy companies across all industries, whereas VCs are focused on technology, bio-tech, and clean-tech. % Acquired: PE firms almost always buy 100% of a company in an LBO, whereas VCs only acquire a minority stake less than 50%. Size: PE firms make large investments at least $100 million up into the tens of billions for large companies. VC investments are much smaller often below $10 million for early-stage companies. Structure: VC firms use only equity whereas PE firms use a combination of equity and debt. Stage: PE firms buy mature, public companies whereas VCs invest mostly in early-stage sometimes pre-revenue companies