VENTURE CAPITAL(VC)

• Venture capital refers to an equity or equity related investment in

growth oriented small or medium business.
• VC firms invest in these early –stage companies in exchange for
equity or an ownership stake and take on the risk of financing risky
start-ups in the hope that some of them will boom.
• The start-ups are usually from high technology industries such as
information technology, bio-technology.
• VC provides strategic advice to the firm’s executives on its business
model. VC have interest in generating a return through an exit event
such as an IPO or merger or an acquisition.
STAGES OF VC FINANCING
• VC financing can be broadly classified into the following 6 stages:

1. Seed Capital: Investment towards product development, market research, building a team,
developing B-plan.
2. Startup Financing: New activity launched. Funding for marketing and product development.
3. Early Stage Financing: Capital provided to initiate commercial manufacturing and sales after
completion of the initial development stage.
4. Expansion Financing: Finance provided to the expansion or growth of the company say increased
production capacity.
5. Replacement Financing: Financing for the purchase of the existing shares from the
entrepreneurs.(old VC exit and new investors come in prior to IPO)
6. Turnaround Financing: Financing to enterprise that has become unprofitable after launching
commercial production.
METHODS OR INSTRUMENTS OF VC
FINANCING
• Financing can be done vie the methods described below:

1. Equity Financing: A venture in its initial stage is not able to give timely returns
to its investor, for which equity financing proves beneficial.(equity for investor
is not more than 49%, thereby ultimate power rests with entrepreneur.
2. Conditional Loan: The ones that do not carry interest and are repayable to the
lender in the form of royalty.
3. Participating Debentures: The interest on participating debentures is payable at
three rates: Nil at Startup phase, Low Rate – Initial operation phase, High
Rate-After a particular level of operations.
4. Convertible Loans: The loans which are convertible into equity when interest
on the loan is not paid within the stipulated period.
 PRIVATE EQUITY
• Private Equity is an alternative investment class and consists of in capital
that is not listed on a public exchange.
• Private Equity is composed of investors that directly invest in private
companies, or that engage in buyouts(purchase of controlling shares) of
public companies.
• Institutional and retail investors provide the capital for private equity, that
can be utilized to fund a new technology, make acquisitions, expand
working capital, and solidify a balance sheet.
• A private equity fund has Limited Partners(LP), who typically own 99% of
shares in a fund and have limited liability, and General Partners (GP), who
own 1% of share and have full liability.
• The latter are also responsible for executing and operating the investment.
PERFORMANCE OF PRIMARY MARKET IN
INDIA
• A primary market issues new security on an exchange for companies,
governments and other groups to obtain financing through debt-based or
equity-based securities. Primary markets are facilitated by underwriting groups
consisting of investment banks that set a beginning price range for a given
security and oversee its sale to investors. Issue of Corporate Securities takes place
in the following ways:

1. Public issue through prospectus: under this method, the company issues a
prospectus to the public inviting offers for subscription. The investors who are
interested in the securities apply for the securities they are willing to buy.
Under the Company Act it is obligatory for a public limited company to issue a
prospectus or file a statement in lieu of prospectus to registrar of companies
made in accordance with the provision of the companies act and guidelines of
SEBI.
2. Green Shoe option: Its an over-allotment option. In context of an initial public
offering(IPO), it is a provision in an underwriting agreement that grants the
underwriter the right to sell investors more shares than initially planned by the
issuer if the demand for a security issue proves higher than expected.
3. Offer for sale: under this method, the issuing company allots or agrees to allot the security to an
issue house at an agreed price. The issue house or financial institution publishes a document called an
‘offer for sale’. It offers to the public shares or debentures for sale at higher price.
4. Private Placement: A private placement involves the sale of securities to a relatively small number
of selected investors. Investors targeted include wealthy accredited investors, large banks, mutual
funds, insurance companies and pension funds.
5. Right Issue: Right Issue means an issue of new securities to be offered to existing shareholder of
the company at a specified price within a subscription period. Right issue to the existing shareholder is
generally at a discount to the market price of the shares.
6. On-Line IPO: Public issue can be made either through the existing banking channels or through the
online system. SEBI has certain guidelines on online issues for instance there must be an agreement
with the stock exchange, SEBI registered broker must be appointed who collects money from clients
and transfers to the register the issue.
7. ESOP: It’s a method of marketing the securities whereby its employees are encouraged to take up
the shares. It’s a voluntary scheme. As per SEBI guidelines a special resolution is required for ESOP,
and its operations are guided under the remuneration committee of Board of Directors.
8. Preferential Issue: Its an issue of shares or convertible securities by listed companies to select a
grp of persons. Such allotments are generally made to the promoters, foreign partners and private
equity funds.
9. Bonus Issue: Bonus share is also one of the ways to raise capital but it does not bvring any fresh
capital. Companies distribute profit to the existing shareholder by way of fully apid bonus share
instead of dividend. Only enables the company to restructure its capital. Its not included in primary
issue.
 CORPORATE
LISTINGS

LISTING OF DELISTING OF
CORPORATE CORPORATE
STOCKS STOCKS
 LISTING OF CORPORATE STOCKS
• Listing means admission of securities on a recognised stock exchange. The securities may be of any
public limited company, Central or State Government or other financial institutions or corporations.

• The objectives of listing are mainly to:

1. Provide liquidity to securities
2. Mobilize savings for economic development
3. Protect interest of investors by ensuring full disclosures.

• A company , desirous of listing its securities on the Exchange, shall be required to file an
application, in the prescribed form, with the Exchange before issue of Prospectus by the company,
where the securities are issued by way of a prospectus or before issue of ‘Offer for Sale’, where the
securities are issued by way of an offer for sale.
 DELISTING OF CORPORATE STOCKS
• Delisting of securities means removal of the securities of a listed company from
the stock exchange.

1. Compulsory delisting refers to permanent removal of securities of a listed

company from a stock exchange as a penalizing measure for not making
submissions/complying with various requirements set out in the Listing
Agreement within the time frames prescribed.

2. In voluntary delisting, a listed company decides on its own to permanently

remove its securities from a stock exchange. This happens mainly due to
merger or amalgamation of one company with the other or due to the
non-performance of the shares on the particular exchange in the market.