Venture Capital

Submitted To: Submitted By:

Mr. Pardeep Kumar Parneet Ahluwalia
Assist. Prof. MFS 175
MBA
Venture capitalists only have two emotions: fear and
greed. All their decisions are reached by balancing one
against the other.
 Venture

A course of action or
proceeding, the outcome of
which is uncertain but which
is attended by the risk of
danger of µloss¶.
 Capital

The resources to start the enterprise

OR
The money, property, and other
valuables which collectively
represent the wealth of an individual
or business.
 =efinition of venture capital
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³Venture Capital is defined as long-term
equity investment in novel technology
based projects with display potential for
significant growth and financial return.´
¦ According to 1995 Finance Bill
 Venture capital financing
  

 
 is a type of
financing by venture capital: the type
of private equity capital typically
provided to early-stage, high-potential,
growth companies in the interest of
generating a return through an
eventual realization event such as an
IPO or trade sale of the company.
 ORIGIN OF VENTURE
CAPITAL

In the 1920¶s and 30¶s, the wealthy

families of and individual investors provided the
startup money for companies that would later
become famous Eastern Airlines and Xerox are
the more famous ventures they financed In its
early years VC may have been associated with
high technology, over the years the concept has
undergone a change and as it stands today it
implies pooled investment in unlisted companies
 Characteristics Of VC
ÿ New Ventures.
ÿ Continuous Involvement.
ÿ Mode of Investment.
ÿ Objective.
ÿ Hands-on Approach.
ÿ High risk-Return Ventures.
ÿ Nature Of Firms.
ÿ Liquidity.
 VENTURE CAPITAL
INVESTMENT PROCESS

-Deal origination
-Screening
-Due diligence (Evaluation)
-Deal structuring
-Post investment activity
-Exit plan
 Dimensions of Venture
Capital

ÿEquity Participation.
ÿConventional loan.
ÿCondition Loan.
ÿIncome Notes.
 Stages OF Venture Capital
Financing

A. Early Stage Financing

ÿ Yeed capital.
ÿ Ytart¦up Finance.
ÿ Additional finance
ÿ Yecond¦round Financing.
ÿ Establishing Finance.
 Stages of VC Financing (Contd.)

-Development Capital.
-Bridge/Expansion capital.
-Management Buyouts.
-Mgmt. Buyins.
-Turnarounds.
 Methods of Evaluation of VC

A. Conventional Method.
B. First Chicago Method.
C. Revenue Multiplier Method.
 A. Conventional Method
-Annual Revenue.
-Expected Earnings level.
-Future Market Valuation.
-Present Value of VC.
-Minimum Percentage of Ownership.
 B. First Chicago Method
- Alternative Ycenarios.
- Present value of VC .
- Expected value of VC.
- Minimum Percentage of Ownership :
Finance sought * 100
Expected Present Value of the Venture Capitalist
 C. Revenue Multiplier
Method

Annual revenue of the company *

estimated revenue multiplier
 Advantages
ÿ Provides large sum of finance &expertise.
ÿ Mentoring .
ÿ Alliances .
ÿ Facilitate exit.
ÿ Business & Management Consultations.
ÿ Additional Resources.
ÿ Encourages new breed of Entrepreneur.
 Disadvantages
ÿ Pricing / Negotiation.
ÿ Intrusion
ÿ Control / demand of the board of the
company .
ÿ Industry specific .
ÿ Bring enormous pressure to profit
quickly .
ÿ Long and complex process.
ÿ Requirement of Professional business
Plan Drawer.
 Venture Capital industry in
India
ÿ Risk Capital and Technology Finance Corporation
limited.
ÿ IDBI venture capital fund.
ÿ Technology development and Information Company
of India Limited (TDICI)
ÿ Indus Venture Capital fund.
ÿ Small Industrial Development bank of India (SIDBI).
ÿ Gujarat Venture Finance Limited.
ÿ Others.