niwas verma (8148)

mayur rathod (8135)

kusumkant pandey (8131)
hitesh jain (8114)

NV 1
What is VC Funding???

It is not just the story of the man

with the IDEA and the man with
the MONEY.

NV 2
What VC Funding is???

It is the business of employing capital

‘patiently’ to ‘maximise returns’ while
managing risks in a relatively high risk
venture

VERSUS

Simply ‘minimising risks’ for a surer fixed

return.

NV 3
Origin of modern VC

 VC investments began to emerge marked by

the founding of the first two VC firms in 1946:
American Research and Development
Corporation (ARDC) & J.H. Whitney & Co.
 ARDC was founded by Georges Doriot, the
"father of venture capitalism” with Ralph
Flanders and Karl Compton, to encourage
private sector investments in businesses run
by soldiers who were returning from World
War II.

NV 4
Why Venture Capital???
 Has the potential to finance start-ups as
venture capitalists are generally willing
to accept high levels of risks for high
potential profits.
 Do not require collateral nor charge
interest payments.
 Long-term or atleast medium term
capital
 Contribute to the management of the
firm
NV 5
Why Venture Capital???

NV 6
Characteristics of VC

 High risk
 High return
 Long term
 Often investments in new
technology, new marketing
concepts or new product
 Close involvement of investor

NV 7
Where Does VC Money Come
From?
 Professional VC Firms raise money from Insurance
Co., Educational Endowments, Pension Funds and
Wealthy Individuals.
 These organizations have an investment portfolio
which they allocate to various asset classes such as
stocks (equities), bonds, real estate etc.
 One of the assets classes is called “Alternative
Investments”- VC is such an investment. Perhaps
5% to 10% of the portfolio might be allocated to
Alternative Investments.
 The portfolio owners seek to obtain high returns
from these more risky Alternative Investments.

NV 8
World’s biggest VC firms

NV 9
VC in India

 In India, the need for Venture Capital was

recognised in the 7th five year plan and long
term fiscal policy of GOI.
 In 1973 a committee on Development of small
and medium enterprises highlighted the need
to faster VC as a source of funding new
entrepreneurs and technology.
 VC financing really started in India in 1988 with
the formation of Technology Development and
Information Company of India Ltd. (TDICI) -
promoted by ICICI and UTI.

KKP 10
TDICI – REPORT CARD

 MASTEK , a Mumbai based software firm, in

which the TDICI invested Rs.42 lakh in equity
in 1989, went public just three years later, in
November 1992. It showed an annual growth
of 70-80 percent in the turnover.
 RISHABH INSTRUMENTS of Nasik got Rs.40
lakh from the TDICI. After making cash losses
totalling Rs.25 lakh in two bad years, it turned
around in 1989 and showed an increase of
over 70 percent in the turnover.

KKP 11
Venture Capital
Investments (in India)

Source: The Economic Times

KKP 12
What do VC’s look for???

 Promoter’s integrity, relevant

experience, drive level
 Uniqueness of their idea
 Focus on/commitment to their idea
 Competitive advantages
 Good market size & growth rates

KKP 13
What do VC’s look for???

 Acceptable geographic location

 Appropriate stage of investment
 Acceptable size of investment
 Number of years that investment
must be held
 Desired rate of return

KKP 14
Types of VC Funds in
India

KKP 15
Types of VC Funds in
India

KKP 16
Investment Process

MR 17
Stages of VC financing

MR 18
Seed stage financing
 The venture is still in the idea formation stage
and its product or service is not fully
developed. The usually lone founder/inventor
is given a small amount of capital to come up
with a working prototype. Money may also be
spent on marketing research, patent
application, incorporation, and legal
structuring for investors.
 It's rare for a venture capital firm to fund this
stage. In most cases, the money must come
from the founder's own pocket, from the "3
Fs" (Family, Friends, and Fools), and
occasionally from angel investors.

MR 19
Start up financing

 The venture at this point has at least

one principal working full time. The
search is on for the other key
management team members and work
is being done on testing and finalizing
the prototype for production.

MR 20
First - stage financing

 The venture has finally launched and

achieved initial grip. Sales are trending .
A management team is in place along with
employees.
 The funding from this stage is used to fuel
sales, reach the breakeven point, increase
productivity, cut unit costs, as well as build
the corporate infrastructure and
distribution system. At this point the
company is two to three years old.

MR 21
Second - stage financing

 Sales at this point are starting to snowball.

The company is also rapidly accumulating
accounts receivable and inventory. Capital
from this stage is used for funding expansion
in all its forms from meeting increasing
marketing expenses to entering new markets
to financing rapidly increasing accounts
receivable.
 Venture capital firms specializing in later
stage funding enter the picture at this point.

MR 22
Mezzanine or Bridge
financing
 Mezzanine or bridge financing is a short term
form of financing used to prepare a company
for its IPO.
 This includes cleaning up the balance sheet to
remove debt that may have accumulated, buy
out early investors and founders, and pay for
various other costs stemming from going
public.
 The funding may come from a venture capital
firm or bridge financing specialist. They are
usually paid back from the proceeds of the IPO.

HJ 23
Initial Public Offering
(IPO)
 The company finally achieves liquidity by
being allowed to have its stock bought and
sold by the public. Founders sell off stock
and often go back to square one with
another startup.
 Some companies have more financing
stages than shown above and others may
have fewer. Very few reach the bridge or
IPO stages. It all depends on the individual
company.

HJ 24
Methods of VC Financing

HJ 25
Risks associated with
VCF

HJ 26
VC vs. PE (Investment
Target)
Venture Capital Private Equity
 Early state  Later stage businesses,
businesses, expansion involves operational or
financial restructuring
 Mature products, services
 Innovative products,
services, technologies  Generally have large
 Heavily dependent on cashflows
external financing  May be listed or unlisted
 Unlisted companies

HJ 27
Conclusion

HJ 28
NV 29