CAPITAL STRUCTURES

•Debt Financing
•Equity Financing
•Venture capital
.
•Informal risk capital
FACTORS AFFECTING CAPITAL STRUCTURES

•Financial leverage /trading on equity

•Expected cash flows

•Stability of sales

•Control over company

•Flexibility of financial structure

.
•Cost of capital

•Market conditions

•Period of financing
 DEBT FINANCING

Includes:

•Short term borrowing (one year

or less)

•Long term borrowing (term

loans upto five years)
 DEBT FINANCING
ADVANATGES DISASDVANATGES

No relinquishment of Regular interest

ownership payments are
required
Continual cash flow
problems
Inhibition to growth
and development
 Sources of Debt Financing
 Commercial Banks

 Trade credit

Accounts receivable factoring

 Finance companies
 EQUITY FINANCING

Includes:

•Money invested in the venture with no

legal obligation to repay the principle
amount or pay interest

•Requires sharing of ownwership and

profits with the funding source
 VENTURE CAPITAL FINANCING
Venture capital is the risk capital which is
required to launch and operate a
business venture in the initial stages.
Examples: Venture capital Fund of IDBI,
ICICI Venture Funds management co.,
National venture fund for software and IT
Industry (NVFSIT)
 VENTURE CAPITAL FINANCING
Activities of VENTURE CAPITALISTS
•Capital for start up and expansion
•Market research and strategy
•Management consulting
•Contacts with prospective customers,suppliers
•Management and accounting controls
•Employee recruitment
•Risk management
•Counelling and guidance with govt. regulations
 VENTURE CAPITAL
ADVANATGES DISASDVANATGES

No fixed expense of Dilution of

dent financing shareholding
Financial flexibility Increased third party
governance
Sharing of risk Increased controls

Value added investing

Enhanced credibility
with lenders
 VENTURE CAPITAL FINANCING
Criteria for evaluating NEW-VENTURE
PROPOSALS:
•Timing of entry
•Key success factor stability
•Educational capability
•Competitive rivalry
•scope
•Industry related competence
•Lead time
 EVALUATION PROCESS IN
VENTURE CAPITAL FINANCING
INITIAL SCREENING

EVALUATION OF BUSINESS PLAN

ORAL PRESENTATION

Final Evaluation
 INFORMAL RISK CAPITAL
ANGEL FINANCING

Angels : Type of investors who

has already made his o her
money and now seeks out
promising young ventures to
support financially.
 Angel Financing
Angel seek non financial returns:
Creation of jobs in areas of high unemployment
Development of technology for social needs
Minority or disadvantaged assistance
Urban revitalization
 ENTREPRENURIAL ANGELS ENTHUSIAST ANGELS

CORPORATE
TYPES OF ANGEL
ANGELS
INVESTORS

MICRO MANAGEMENT
PROFESSIONAL ANGELS
ANGELS
BUSINESS ANGEL INVESTMENTS
ADVANATGES DISASDVANATGES

Value adding Want a say in firms

Seek smaller deals Could turn out to be

DEVILS
Invest in all industry No national reputation
sectors top leverage

no high fees
ANGEL INVESTING NETWORKS IN INDIA :

EXAMPLES

•CHENNAI FUNDS

•INDIAN ANGELS NETWORK

•MUMBIA ANGELS

•THE ENTREPRENEURSHIP ACCELERATION PROGRAM

 DIFFERENCE BETWEEN
BUSINESS ANGELS VENTURE CAPITALIST

Entrepreneurs investors

Fund small/early stage Larger/mature stage

Simple contracts Comprehensive
no high fees contracts
Rate of return is of Rate of return is highly
lesser concern important