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Venture Capital Financing

Venture Capital Financing. By- Rahul Jain. What Is Venture Capital?. High Risk Capital Seeking 50%+ Annual Rates of Return Active Investors Who Will Step In and Make Changes to Protect Their Investment Experienced Investors Who Know How to Build Large Companies. Some Statistics.

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Venture Capital Financing

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  1. Venture Capital Financing By- Rahul Jain

  2. What Is Venture Capital? • High Risk Capital Seeking 50%+ Annual Rates of Return • Active Investors Who Will Step In and Make Changes to Protect Their Investment • Experienced Investors Who Know How to Build Large Companies

  3. Some Statistics • 99%+ of All Startups Do Not Require Institutional Venture Capital • VCs average initial investment is $3M+ • Average Dilution from Initial VC Investment is 40%+ • VCs look at over 100 business plans for every one they finance

  4. Features of Venture Capital • Equity Participation. • Long-term Investments. • Participation in Management. Venture capitalist combines the qualities of bankers, stock market investors and entrepreneur in one.

  5. When Is VC Good • Heavy R&D Component of the business • Semi conductors • Biotech • Datacomm Equipment • Very Large Opportunity Requiring A Lot of Working Capital • Federal Express • Amazon.com

  6. When is VC Wrong For You • Too Early – You Don’t Have Enough to Show Yet (Revenues, Product, Team) • Too Small – You Only Need A Couple Million to Get Profitable • Not Proprietary – Your Business Has No Barriers to Entry. It is Just An Execution Game.

  7. When Is VC Wrong For You [continued] • You Need to Move Fast • Raising VC takes 3-6 months minimum • You Are Dilution Sensitive • You Need To Be In Control • You Don’t Need It

  8. Stages in Venture Financing • Early Stage Financing • Expansion Financing • Acquisition/Buyout Financing

  9. Venture Capital Investment Process • Deal Origination • Screening • Evaluation • Deal Structuring • Post-investment activity • Exit

  10. Methods of Venture Financing • Equity • Conditional Loan • Income Note • Other Financing Methods • Participating Debentures • Partially Convertible Debentures • Cumulative Convertible Preference Shares • Deferred Shares • Convertible Loan Stock • Special Ordinary Shares • Preferred Ordinary Shares

  11. Disinvestment Mechanisms • Buybacks • Initial Public Offerings • Secondary Stock Markets

  12. Entrepreneurs’ Role • Entrepreneurs are drivers of innovations, of job creation and of economic development. • Entrepreneurship should be advocated and supported by the entire business world. • Entrepreneurs in developed economies consider the primary contribution of the venture capitalists to be other than financial. • Assistance with recruitment, financial planning, strategic partnering and complex negotiations are important contributions of VCs.

  13. Entrepreneurial Requirement • To build entrepreneurial companies, there is need • To develop service infrastructure. • To reduce bureaucracy with regard to the creation of small businesses. • To provide adequate incentives for entrepreneurs by reforming tax treatment of stock options and capital gains. • To reform labour laws that takes into account the needs and limitations of small businesses.

  14. Future Prospects of Venture Financing • Rehabilitation of sick units. • Assist small ancillary units to upgrade their technologies. • Provide financial assistance to people coming out of universities etc.

  15. Success of Venture Capital • Entrepreneurial Tradition. • Unregulated Economic Environment. • Disinvestment Avenues. • Fiscal Incentives. • Broad Based Education. • Venture Capital Managers. • Promotion Efforts. • Institute Industry Linkage. • R&D Activities.

  16. References • Financial Management by I.M. Pandey

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