This action might not be possible to undo. Are you sure you want to continue?
Chapter 10 Financial Services MY Khan
Venture Capital Meaning A form of equity financing . in a growth oriented small/medium business to enable the investors to accomplish their goals . designed specially for funding high risk and high reward projects . Plays a significant role in financing high tech Projects & helping Research and Development projects to turn into commercial production. . A typical ¶private equity investment·.
with high reward possibilities is also called venture Capital. .Venture Capital ² Meaning. Thus venture capital implies high level of risk implicit in the investment of funds. Long term investment in high risk industrial projects. The investment may take place at any stage of the project between start up and commencement of commercial production..
Definition Dr. to companies with high growth potential. usually in the form of a participation in equity. . Bank of England Quarterly Bulletin : Venture capital is an activity by which investors support entrepreneurial talent with finance and business skills to exploit market opportunities and thus obtain long-term capital gains. The venture company also provides some value added service. in the form of management advice and contribution to overall strategy. Neil Cross : Venture capital investment is defined as the provision of high risk bearing capital.
Features New Ventures Continuous involvement Mode of Investment Objective Hands on Approach High Risk-return ventures. Liquidity Nature of the firms .
since 1989.S. VECAUS : UTI sponsored Venture Capital Unit Scheme . PACT : ICICI undertook the Program for application of commercial technology aided by U. . Technology Development and Information company of India ltd. aimed at supplementing promoters equity with a view to encouraging technologists and professionals to promote new industries. Was appointed as managers. Some venture Capital funds in India are: Risk Capital Foundation: Set up by IFCI. Seed Capital Scheme : Established by IDBI in 1976.India Still in its infancy. with the same objective. Aid .Venture Capital . which aims at financing specific needs of the corporate sector industrial units.
The lender takes special care to ensure the end use of the loan. Development capital is granted in the form of loans for setting up industrial units. and requires prompt payment of interest. .VCC remains interested in the overall management till commencement to production and efficient marketing of the products. thus finally making available an exit route for the liquidating the investments. and for expansion also.Venture Capital and other capital funds Venture Capital and Development Capital: .
Both are components of Venture Capital. Seed Capital and Risk Capital No tangible differences between venture capital. seed capital and Risk capital.Venture capital . Seed and Risk Capital provided by all India financial institutions in the form of promoters contribution to the project. .
Plus continuous infusion of funds in order to sustain the Research and Development The venture Capitalists consider the following for safeguarding their interests: Successful performance record. entrepreneur·s previous experience in similar products. technical innovation . market. clear future prospects for which seed capital is required. Qualities of business management.Seed Capital This is an early stage financing Involves primarily for R & D Financing serious risk for the financiers. technology . .
and where the potential to fulfill effective demand is there. includes providing finance for initial marketing. stage. .Start up Financing Financing at the product development. and the establishment of product facilities. Provided to projects which have been selected for commercial production.
Provision of capital to a firm. .Follow on Financing A later stage of venture capital financing. Considered to be the most attractive stage of venture capital financing. who has previously received external capital. but whose financial needs have subsequently expanded.
Later stage financing . . Other forms Expansion financing : . .here venture capitalists provide funds for adding production capacity.. Replacement Financing: Also known as money out deal.the finance provided to fund the expansion or growth of a company which is breaking even or trading at a small profit. whereby venture capitalists extend financing for the purchase of the existing shares from an entrepreneur or their associates in order to reduce their holdings in the unlisted company.
The venture capitalists provide funds to the acquiring team. . The team acquiring is actively involved in running the venture.. Other forms Turnaround financing : . Provided in the form of a relief package with specialist skills to recover. The owners may or may not be actively involved in running the firm.Later stage financing . Management Buy Outs (MBOs) acquisition of a company from the existing owners by a team of existing management/employees.provided by venture capitalists in the event of an enterprise becoming unprofitable after the launch of commercial production.
Defined as ´ Funds provided to enable a manager or group of managers from outside the company to buy-in the company with the support of venture capital investors. .Management Buy Ins Involves bringing in management team who are outsiders.
. It is intended as a bridge finance and has a maturity period of less than 2 years.While structuring an MBO the mezzanine finance helps the management to retain greater share of the business. So supplied either as debt or as high ranking equity(preference shares). than what they could otherwise afford.Mezzanine Finance Is supplied as a layer which ranks behind secured lending but before ordinary share capital.
Time Schedule: evaluation of time schedule given for completion of the plan on realistic basis.the technical strength of the process. capacity of owners to handle proposed business plan successfully. . . growth. Performance Assumptions : -technical performance assumptions of the product/service. Market Potential : market size.management performance record. potential Cost Structure : profitability projection on realistic cost assumptions.Key appraisal factors for Venture Capitalists The Track record : .
Multilateral Development Agencies. deep discount bonds. conditional loans etc. banks. India financial Institutions. Some debt instruments used are NCDs.Financial sources Venture Capitalists in India . Partly convertible debentures. foreign investors. . Foreign Institutional Investors. besides using their own funds. use other sources like.
Puts and Calls method. potential competition. market condition etc.IPO method. Trade sales through MBOs and MBIs..EXIT MECHANISM Venture capital investment is usually liquidated after accomplishment of the purpose of the venture. or liquidation. The time of exit is decided in advance. sale of shares . . methods of exit may be. sometimes even at the time of financing. Factors considered are financial stake.