VENTURE CAPITAL

1. VENTURE CAPITAL

2. Venture Capital- Basics • Starting and growing a business always require capital. • There are a number of alternative methods to fund growth. These include the owner or proprietor’s own capital, arranging debt finance, or seeking an equity partner, as is the case with private equity and venture capital. • Finance may be required for the start-up, development/expansion or purchase of a company. • New companies or ventures that have a limited operating history and hence may find it difficult to raise funds through an equity or debt offering. • In such a scenario, VC investors play a pivot role in investing in unfinanced areas to promote new ventures.

3. Venture Capital- Basics • Venture capital is most attractive for new companies with limited operating history that are too small to raise capital in the public markets and have not reached the point where they are able to secure a bank loan or complete a debt offering.

4. What is Venture Capital • Venture capital is a means of equity financing for rapidly-growing private companies. • Venture Capital firms invest funds on a professional basis, often focusing on a limited sector of specialization (eg. IT,Bio Technology, infrastructure, health/life sciences, clean technology, etc.). • The venture capital investment helps for the growth of innovative entrepreneurships. • Venture capital is an investment in the form of equity, quasi-equity and sometimes debt - straight or conditional, made in new or untried concepts, promoted by a technically or professionally qualified entrepreneur. • Venture capital means risk capital.

5. What is VC • It is developed as a result of the need to provide non-conventional, risky finance to new ventures based on innovative entrepreneurship. • It refers to capital investment, both equity and debt, which carries substantial risk and uncertainties. • The risk envisaged may be very high. • Venture capital typically comes from institutional investors and high net worth individuals and is pooled together by dedicated investment firms • Provider of seed money for start-ups, midstage firms on the brink of success but needing additional capital, or successful firms capable of expansion to a regional or nationwide platform. • VC also can include managerial and technical expertise.

6. VC- Definition • Venture capital is a type of private equity capital typically provided for 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. • A pool of risk capital, typically contributed by large investors, from which allocations are made available to young, small companies that have good growth prospects but are short of funds. • It is developed as a result of the need to provide non-conventional, risky finance to new ventures based on innovative entrepreneurship. • Venture capital means risk capital.

7. VC- Definition • Venture capital is an investment in the form of equity, quasi-equity and sometimes debt - straight or conditional, made in new or untried concepts, promoted by a technically or professionally qualified entrepreneur. • It refers to capital investment, both equity and debt, which carries substantial risk and uncertainties. The risk envisaged may be very high may be so high as to result in total loss or very less so as to result in high gains

8. VC- Definition • Venture capital means many things to many people. • It is in fact nearly impossible to come across one single definition of the concept. • Jane Koloski Morris, editor of the well known industry publication, Venture Economics, defines venture capital as: 'providing seed, start-up and first stage financing' and also 'funding the expansion of companies that have already demonstrated their business potential but do not yet have access to the public securities market or to credit oriented institutional funding sources’.

9. SEBI Venture Capital Funds (VCFs) Regulations, 1996 Definition: • A Venture Capital Fund means a fund established in the form of a trust/company; including a body corporate, and registered with SEBI which (i) has a dedicated pool of capital raised in a manner specified in the regulations and (ii) invests in venture capital undertakings (VCUs) in accordance with these regulations. • All VCFs must be registered with SEBI and pay Rs.25,000 as application fee and Rs. 5,00,000 as registration fee for grant of certificate.

10. The Origin of Venture Capital • In the 1920's & 30's, the wealthy families and individual investors provided the start up money for companies that had ability to become famous. • General Doriot, a professor at Harvard Business School, in 1946 set up the American Research and Development Corporation (ARD), the first firm to finance the commercial promotion of advanced technology developed in the US Universities. • Among the early VC funds set up was the one by the Rockfeller Family which started a special fund called VENROCK in 1950, to finance new technology companies. • While 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.

11. The Origin of Venture Capital 20th Century • With few exceptions, private equity in the first half of the 20th century was the domain of wealthy individuals and families. • Before World War-II, venture capital investments (originally known as "development capital") were primarily the domain of wealthy individuals and families. • After World War II true private equity investments began to emerge marked by the founding of the first two venture capital firms in 1946: - American research and Development Corporation - J H Whitney & Company

12. The Origin of Venture Capital- 20th century • During the 1960s and 1970s, venture capital firms focused their investment activity primarily on starting and expanding companies in electronic, medical or data-processing technology. • As a result, venture capital came to be almost synonymous with technology finance. • The public successes of the venture capital industry in the 1970s and early 1980s gave rise to a major proliferation of venture capital investment firms. • 90s witnessed world wide economic progress, wherein new ventures started expanding with that the scope for VC funds.

13. Venture Capital in India • In India, the Venture Capital plays a vital role in the development and growth of innovative entrepreneurships. • Venture Capital activity in the past was done by the developmental financial institutions like IDBI, ICICI and State Financial Corporations. • These institutions promoted entities in the private sector with debt as an instrument of funding. • With the minimum paid up capital requirements raised for listing at the stock exchanges, it became difficult for smaller firms with viable projects to raise funds from public. • The need for Venture Capital was recognised in the 7th five year plan and long term fiscal policy of GOI. • VC was recognised with the appointment of Bhatt committee for development of small & medium enterprises.

14. Venture Capital in India • The 1st VC was started in 1975,viz. Risk Capital Foundation (RFC) se up by Industrial Finance Corporation of India(IFCI). • VC existence really started in India in 1988 with the formation of Technology Development and Information Company of India Ltd. (TDICI) - promoted by ICICI and UTI. • At the same time Gujarat Venture Finance Ltd. and APIDC Venture Capital Ltd. were started by state level financial institutions. • Sources for these funds were the financial institutions, foreign institutional investors or pension funds and high net-worth individuals.

15. VC- Advantages • The Venture capital sector is the most vibrant industry in the financial market today. • Venture capital is money provided by professionals who invest alongside management in young, rapidly growing companies that have the potential to develop into significant economic contributors. • Venture capital is an important source of equity for start-up companies. • Venture capital can be visualized as “your ideas and our money” concept.of developing business.

16. VC- Advantages • Venture capitalists are people who pool financial resources from high networth individuals, corporates, pension funds, insurance companies, etc. to invest in high risk - high return ventures that are unable to source funds from regular channels like banks and capital markets. • The venture capital industry in India has really taken off. • Venture capitalists not only provide monetary resources but also help the entrepreneur with guidance in formalizing his ideas into a viable business venture. • It injects long term equity finance which provides a solid capital base for future growth.

17. ADVANTAGES OF VC • 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.

18. Advantages of VC • Equity finance offers the significant advantage of having no interest charges. • It is "patient" capital that seeks a return through long-term capital gain rather than immediate and regular interest payments, as in the case of debt financing. • The venture capitalist is a business partner, sharing both the risks and rewards. • Venture capitalists are rewarded by business success and the capital gain.

19. Advantages of VC In exchange for the high risk that venture capitalists assume by investing in smaller and less mature companies, venture capitalists usually get significant control over company decisions, in addition to a significant portion of the company's ownership (and consequently value). Young companies wishing to raise venture capital require a combination of extremely rare yet sought after qualities, such as innovative technology, potential for rapid growth, a well-developed business model, and an impressive management team.

20. Advantages of VC • Venture capital provides the funding that a company needs to expand its business. It also offers a number of value added services. • Mentoring - Venture capitalists provide companies with ongoing strategic, operational and financial advice. • They will typically have nominee directors appointed to the company’s board and often become intimately involved with the strategic direction of the company. • Alliances - Venture capitalists can introduce the company to an extensive network of strategic partners both domestically and internationally and may also identify potential acquisition targets for the business and facilitate the acquisition. • Facilitate exit - Venture capitalists are experienced in the process of preparing a company for an initial public offering (IPO) of its shares onto the Stock Exchange both in domestic and international market.

21. Advantages of VC • Investment executives working with Venture Capital Funds attempt to identify the best projects in order to minimize their investment risk. • Research has shown that Venture Capital backed companies grow faster than other types of companies, employ more people and are more profitable when benchmarked against their peers. • This is made possible by a combination of capital, Venture Capitalists identifying and investing in the best investment opportunities and input from Non-Executive and Executive Directors introduced by the VC investor (a key differentiator from other forms of finance)

22. Types of VC in India • Development Financial Institutions: Set up by DFIs, viz. IFCI,etc • State Financial Institutions: Promoted by SFCs. • Banks: Sponsored by banks viz. SBI, Canara Bank, BOB etc. • Private funds: Sponsored by private entrepreneurs in collaboration with banks,etc.

23. VC- Stages of Finance • Seed Capital • Start up capital • Early stage financing • Follow on financing • Expansion financing • Replacement financing • Turnaround financing • Buyouts

24. VC- SEBI Regulations • SEBI has made regulations for protecting the interest of the investors. • VCFs regulation was passed in 1996. • In 2000, Chandrasekar committee was appointed to identify the problems of VC industry in India and to suggest methods for their growth. • SEBI regulation is a must to carry on the activities.

25. ANGEL INVESTORS • An Angel investor or Angel is an affluent individual who provides capital for a business start ups usually in exchange for convertible debt or equity. • A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital. • Angels typically invest their own funds, unlike venture capitalists, who manage the pooled money of others in a professionally-managed fund. • Angel capital fills the gap in start-up financing between "friends and family" (sometimes humorously given the acronym FFF, which stands for "friends, family and fools") who provide seed funding, and venture capital.