venture capital

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What if I had a big plan but not capital to invest & implement ??? : 

What if I had a big plan but not capital to invest & implement ???

Definitely I would be searching for some one who can invest on my plan.That investment my dear friends is …. . . . . : 

Definitely I would be searching for some one who can invest on my plan.That investment my dear friends is …. . . . .

VENTURE CAPITAL : 

VENTURE CAPITAL ABHISHEK MBA 2.1 (HONS)

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What does Venture capital mean ??? As it is clear my its name the capital to set up a venture . Venture capital is a form of equity financing designed specially for funding high risk and high reward projects

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venture capital is a source of fund for new enterprise as well as growth of existing enterprise but basically meant for new enterprise and new projects of existing enterprises.

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Who is that investor intersted to imlement our project ???

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venture capitalist A venture capitalist (also known as a VC) is a person or investment firm that makes venture investments, and these venture capitalists are expected to bring managerial and technical expertise as well as capital to their investments.

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Why interested ?? When venture capitalist invest in a business they typically require a seat on the company's board of directors. They tend to take a minority share in the company and usually do not take day-to-day control. Rather, professional venture capitalists act as mentors and aim to provide support and advice on a range of management, sales and technical issues to assist the company to develop its full potential.

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In simple words, venture capitalists usually get significant control over company decisions, in addition to a significant portion of the company's ownership. With venture capital financing, the venture capitalist acquires an agreed proportion of the equity of the company in return for the funding

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Why to opt. venture capital………???

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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.

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The Origin of Venture Capital In 1920’s and 1930’s, the wealthy families and individual investors provide start money for companies. Eg:-Eastern Airlines and Xerox are the more famous ventures they financed At that time, it was not so exposive concept but later on became a common concept. In 1946, American Research and Development Corporation (ARD), a publicly traded, investment company was formed. It provided the capital in 1958 for computer maker Digital Equipment Corp. The number of such specialized investment firms, eventually to be called venture capital firms, began to boom in the late 1950s. Hundreds of SBICs (Small Business Investment Company) were formed in the 1960s, and many remain in operation today. This concept was basically started from USA.

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Types of Venture Capital Funds Generally there are three types of organised or institutional venture capital funds: venture capital funds set up by angel investors, that is, high net worth individual investors; venture capital subsidiaries of corporations and private venture capital firms/ funds. Venture capital subsidiaries are established by major corporations, commercial bank holding companies and other financial institutions.

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Venture funds in India can be classified on the basis of the type of promoters. 1 . VCFs promoted by the Central govt. controlled development financial institutions such as TDICI, by ICICI, Risk capital and Technology Finance Corporation Limited (RCTFC) by the Industrial Finance Corporation of India (IFCI) and Risk Capital Fund by IDBI. 2. VCFs promoted by the state government-controlled development finance institutions such as Andhra Pradesh Venture Capital Limited (APVCL) by Andhra Pradesh State Finance Corporation (APSFC) and Gujarat Venture Finance Company Limited (GVCFL) by Gujarat Industrial Investment Corporation (GIIC)

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3. VCFs promoted by Public Sector banks such as Canfina by Canara Bank and SBI-Cap by State Bank of India. 4. VCFs promoted by the foreign banks or private sector companies and financial institutions such as Indus Venture Fund, Credit Capital Venture Fund and Grindlay's India Development Fund.

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How does the VC industry work Venture capital firms typically source the majority of their funding from large investment institutions such as fund of funds, financial institutions, endowments, pension funds and banks. These institutions typically invest in a venture capital fund for a period of up to ten years. . To compensate for the long term commitment and lack of both security and liquidity, investment institutions expect to receive very high returns on their investment.

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Although the venture capitalist may receive some return through dividends, their primary return on investment comes from capital gains when they eventually sell their shares in the company, typically between three to five years after the investment. Therefore venture capitalists invest in either companies with high growth potential where they are able to exit through an IPO( initial public offering)

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Venture capitalists are therefore in the business of promoting growth in the companies they invest in and managing the associated risk to protect and enhance their investors' capital……

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What do VC's look for Venture capitalists are higher risk investors and, in accepting these risks, they desire a higher return on their investment. The venture capitalist manages the risk/reward ratio by only investing in businesses which fit their investment criteria and after having completed extensive due diligence.

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Venture capitalists have differing operating approaches.:- These differences may relate to location of the business, the size of the investment, the stage of the company, industry specialization, structure of the investment and involvement of the venture capitalists in the companies activities.

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Venture capital is not suitable for all business,as some conditions are there on part of venture capitalist:

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Exit Opportunity Lastly, venture capitalists look for the clear exit opportunity for their investment such as public listing or a third party acquisition of the investee company. As well as the requirement of being an attractive business opportunity, the venture capitalist will also seek to structure a deal to produce the anticipated financial returns to investors. This includes making an investment at a reasonable price per share (valuation).

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Now the question is how to approach… ???

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BUSINESS PLAN Always remember, Venture capitalists view hundreds of business plans every year. So we are dependent on them not them. The business plan must therefore convince the venture capitalist that the company and the management team have the ability to achieve the goals of the company within the specified time.

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Use plain English, especially if you are explaining technical details The nature of the company’s business, what it wants to achieve and how it is going to do it. Challenging but achievable goals. The length of the business plan should be no longer than 25-30 pages. Emphasizing its financial ability.

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Some most important points in a business plan must be read in details. As follows : Background of the company The product or seervice Market analysis Marketing The management team Financial projections Amount and use of finance required and exit oppurtunities.

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Background of the company Provide a summary of the fundamental nature of the company and its activities, a brief history of the company and an outline of the company’s objectives

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2. The product or service Emphasise the product or service's competitive edge or unique selling point. Describe the stage of development of the product or service (seed, early stage, expansion). Is there an opportunity to develop a second-generation product in due course? Is the product or service vulnerable to technological redundancy? If relevant, explain what legal protection you have on the product, such as patents attained, pending or required. Assess the impact of legal protection on the marketability of the product.

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3. Market analysis Combination of clear description and analysis, including a realistic "SWOT" (strengths, weaknesses, opportunities and threats) analysis. Define your market, size of the whole market, prospects for this market, How developed is the market as a whole. Who are your competitors? proportion of the market do they account? What is their strategic positioning? distribution channels Explain the historic problems faced by the business and its products or services in the market. Address the current issues, concerns and risks affecting your business and the industry in which it operates.

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4. Marketing Outline your sales and distribution strategy What is your pricing strategy What are your advertising, public relations and promotion plans?

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5. The management team List your advisers and board members. Potential skills gaps and explain how you are going to fill them Senior management team ideally should be experienced in complementary areas Include an organisation chart

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6. Financial projections Realistically assess sales, costs (both fixed and variable) cash flow and working capital. profit and loss statement and balance sheet. Relevant historical financial performance should also be presented

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7. Amount and use of finance required and exit opportunities State how much finance is required by your business and from what sources (i.e. management, venture capital, banks and others) Consider how the venture capital investors will exit the investment and make a return. Possible exit strategies for the investors may include floating the company on a stock exchange or selling the company to a trade buyer.

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That was the role played by an enterprise who had a plan. After this, the role of venture capitalist starts with a processing on a plan.

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Investment Process Preliminary screening Negotiating investment Approvals and investment completed

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Investment Process Preliminary Screening The very first step in which venture capitalist meet an entrepreneur and his management team to understand the organization as well as its prospects. It is a very basic step in which capitalist verify that whether the project is compatible or not. The venture capitalist will look carefully at the team's functional skills and backgrounds. It is an important time for the management team to demonstrate their understanding of their business and ability to achieve the strategies outlined in the plan

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Negotiating Investment This involves an agreement between the venture capitalist and management of the terms of the term sheet, often called memorandum of understanding (MoU). Some factors which venture capitalist would go for research are : 1. Market forecasts 2. Estimating the size and growth rates of markets and market segments 3. Information about competitors, entry barriers 4. Product life cycles, and distribution channels.

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Approvals and Investment Completed This step involves disclosure of all relevant business information. Investment proposal is typically submitted to the venture capital fund’s board of directors. If approved, legal documents are prepared. The investment process can take up to two months, and sometimes longer.

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VENTURE CAPITAL: INDIAN CONTEXT In 1973 a committee on Development of Small and Medium Enterprises highlighted the need to foster venture capital as a source of funding new entrepreneurs and technology In the absence of an organized Venture Capital industry till almost 1998, individual investors and development financial institutions played the role of venture capitalists in India. But due to the effect of globalisation after1991, the economy changed effecting the change in the system of venture capital. Let’s discuss some facts and figures ::::

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In 2006, total amount of private equity, including venture capital reached US$7.5 billion across 299 deals The venture capital investment in India till the year 2001 was continuously increased and thereby drastically reduced. Chart I shows that there was a tremendous growth by almost 327 percent in 1998-99, 132 percent in 1999-00, and 40 percent in 2000-01 there after venture capital investors slow down their investment. Surprisingly, there was a negative growth of 4 percent in 2001-02 it was continued and a 54 percent drastic reduction was recorded in the year 2002-2003. Important facts

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Chart 1

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Venture capital in various sectors

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Regulatory Guidelines & Framework A study was undertaken by the World Bank to examine the possibility of developing Venture Capital in the private sector, based on which the Government of India took a policy initiative and announced guidelines for Venture Capital Funds (VCFs) in India in 1988. However, these guidelines were limited to the domestic financial institutions. Later on, govt modified the guidelines and loosened the policy in regard to overseas venture capital investors in 1995.

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Guidelines were also issued by the Central Board of Direct Taxes (CBDT) for pupose of tax exemption. Flow of foreign currency into and out of India have been governed by the Reserve Bank of India's (RBI) according to its requirements. Further, as a part of its mandate to regulate and to develop the Indian capital markets, the Securities and Exchange Board of India (SEBI) framed the SEBI (Venture Capital Funds) Regulations, 1996 These guidelines were further amended in Apr 2000 with the objective of fuelling the growth of Venture Capital activities in India.

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These are venture capital companies in India. Accel Partners India Artheon Ventures Artiman Ventures BlueRun Ventures Canaan Partners DFJ India Epiphany Ventures Helion Venture Partners IFCI Venture Capital Funds India Innovation Investors Intel Capital Inventus (India) Advisory Company JAFCO Asia Lightspeed Venture Partners Netz Capital Nexus India Capital Norwest Venture Partners Ojas Venture Partners Reliance Technology Ventures

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IFCI Venture Capital Funds IFCI :- Industrial finance corporation of India IFCI venture capital funds ltd. was originally setup by IFCI as a Society by the name of Risk Capital Foundation (RCF) in 1975 to provide institutional support to set up their own ventures in the medium scale sector through soft loans, under the Risk Capital Scheme. In 1988, RCF was converted into a company, Risk Capital and Technology Finance Corporation Ltd. (RCTC), when it also introduced the Technology Finance and Development Scheme for financing development and commercialisation of indigenous technology. To reflect the shift in the company’s activities, the name of RCTC was changed to IFCI Venture Capital Funds Ltd. (IFCI Venture) in February 2000.

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India Automotive Component Manufacturers Private Equity Fund :- 396 crores ii) India Enterprise Development Fund (IEDF) :- 250 crores iii) Green India Venture Fund (GIVF) :- 330 crores IFCI Venture Capital Funds Limited (IFCI Venture) has launched three new funds

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Conclusion The changes in the venture capital regulation will have a positive impact on investment by venture capitalists. In 2003 India was ranked fifth in the Asia pacific region with investment of $774.01 million in 42 companies. Japan topped the list with investment of $7297.71 millions in 77 companies. Venture capital investments in India has been increasing over the period. Private equity and venture capital firms invested about $1.5 bln in 125 Indian companies during 2005. The 2005 Indian VC activity represented a slight decrease from 2004 when 129 companies raised $1.6 bln. The Venture capital investment will definitely get the boost as the investment has now been allowed in Real Estate and Gold Financing and certain other restrictions have been eased with.

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VENTURE CAPITAL Thank u ol…!!! Abhishek (3012) MBA 2.1 (HONS)

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