4.

2 Meaning of Venture Capital

Venture capital (VC) is a form of private equity funding that is generally provided to start-ups
and companies at the emerging stage. VC is often offered to firms that show significant growth
potential and revenue creation, thus generating potential high returns.
Start up companies with a potential to grow need a certain amount of investment. Wealthy
investors like to invest their capital in such businesses with a long-term growth perspective.
This capital is known as venture capital and the investors are called venture capitalists.
4.3 Classification or Stages of Venture Capital
Seed financing: It is defined as a small amount that an entrepreneur receives for the purpose
of idea testing, R&D of a product. Even though the product is not developed, Venture Capital
firms show interest in your idea by checking the proof of concept and the type of business
model you choose. Before reaching out to the venture capitalists at the seed stage, the founders
must validate the startup idea. Because if the idea is not feasible for VCs, they do not show
interest in investing.
Start up financing is given to companies for the purpose of finishing the development of
products and services. This covers Office space, Recruiting staff, and To do further market
research. Since there will be no proof of the growth at this stage, entrepreneurs need more effort
to get this small amount from the VC firms. They can also seek an expert to guide and develop
their business to make the business profitable at the initial stages.
First Stage financing: Companies that have spent all their starting capital and need finance
for beginning business activities at the full-scale. Venture Capital firms fund at this stage to
maximize productivity, to increase sales, advertising, and marketing activities. This will be a
large sum of money that will help your company to reach a wider group of the audience which
creates brand awareness and makes your company a well-established one.
Second stage:
Second stage funding is provided to the well-established companies which show increased
growth and revenue. After reaching a larger audience, the entrepreneurs may wish to expand
their business to the next level.
Third stage: Also known as Mezzanine financing, this is the money for expanding a newly
beneficial company.
Fourth stage: Also called Bridge Financing, it is proposed for financing the "going public"
process (IPO).
The process of Venture Capital Financing
The following steps are there in the process of venture capital financing:
Deal origination
Origination of a deal is the primary step in venture capital financing. It is not possible to make
an investment without a deal therefore a stream of deal is necessary however the source of
origination of such deals may be various. One of the most common sources of such origination
is referral system. In referral system deals are referred to the venture capitalist by their business
partners, parent organisations, friends etc.
Screening
Screening is the process by which the venture capitalist scrutinises all the projects in which he
could invest. The projects are categorised under certain criterion such as market scope,
technology or product, size of investment, geographical location, stage of financing etc. For
the process of screening the entrepreneurs are asked to either provide a brief profile of their
venture or invited for face-to-face discussion for seeking certain clarifications.
Evaluation
The proposal is evaluated after the screening and a detailed study is done. Some of the
documents which are studied in details are projected profile, track record of the entrepreneur,
future turnover, etc. The process of evaluation is a thorough process which not only evaluates
the project capacity but also the capacity of the entrepreneurs to meet such claims. Certain
qualities in the entrepreneur such as entrepreneurial skills, technical competence,
manufacturing and marketing abilities and experience are put into consideration during
evaluation. After putting into consideration all the factors, thorough risk management is done
which is then followed by deal negotiation.
Deal negotiation:
After the venture capitalist finds the project beneficial he gets into deal negotiation. Deal
negotiation is a process by which the terms and conditions of the deal are so formulated so as
to make it mutually beneficial. The both the parties put forward their demands and a way in
between is sought to settle the demands. Some of the factors which are negotiated are amount
of investment, percentage of profit held by both the parties, rights of the venture capitalist and
entrepreneur etc.
Post investment activity
Once the deal is finalised, the venture capitalist becomes a part of the venture and takes up
certain rights and duties. The capitalist however does not take part in the day to day procedures
of the firm; it only becomes involved during the situation of financial risk. The venture
capitalists participate in the enterprise by a representation in the Board of Directors and ensure
that the enterprise is acting as per the plan.
Exit plan
The last stage of venture capital investment is to make the exit plan based on the nature of
investment, extent and type of financial stake etc. The exit plan is made to make minimal losses
and maximum profits. The venture capitalist may exit through IPOs, acquisition by another
company, purchase of the venture capitalists share by the promoter or an outsider.
Different Models of VC:
Single direct investments
• This is often the first step corporates take into venture capital.
• It usually involves minority investments in the startups and is decided on in the same
way a corporate would decide on an M&A investment.
• No specific Venture Capital experts are needed.
• This type of investing is often combined with a corporate incubator or accelerator.
Multiple direct investment
This is a very common practice among corporates that have decided to support internal R&D
efforts by repeatedly but still opportunistically investing into start-ups.
• This is usually a more structured approach than single direct investments and there may
be some dedicated internal or external resources dedicated to it.
• Investments are mostly driven by the R&D department and tend to foster incremental
innovation.
Portfolio
• A portfolio of investments takes the multiple direct investments one stage further,
combining it with a long term capital commitment to invest in 2-5 deals every year,
based on a defined investment strategy.
• It can be closely attached to the corporate core business but sometimes is set up as a
separate legal entity.
• Because of the ambitious goals and capital commitments, it needs a qualified internal
team or external resources to manage.
LP investment
• Corporates can invest as LPs in independent Venture Capital funds.
• This gives them access to the digital ecosystem and access to startup deals.
Corporate Venture Capital fund
• A proprietary corporate Venture Capital fund has an independent, professional Venture
Capital structure including an independent investment committee.
• Business units have no veto rights over the investment decisions.
4.4 Angel Investors/Investing
Angel investors invest in small startups or entrepreneurs. Often, angel investors are among an
entrepreneur's family and friends. The capital angel investors provide may be a one-time
investment to help the business propel or an ongoing injection of money to support and carry
the company through its difficult early stages.
Angel investors provide more favorable terms compared to other lenders, since they usually
invest in the entrepreneur starting the business rather than the viability of the business. Angel
investors are focused on helping startups take their first steps, rather than the possible profit
they may get from the business. Essentially, angel investors are the opposite of venture
capitalists.
An angel investor is a person that provides capital for start-up businesses in exchange for
ownership equity or convertible debt. They may provide a one-time investment or an ongoing
capital injection to help the business move through the difficult early stages. Unlike banking
institutions that invest in already profitable businesses, angel investors invest in entrepreneurs
taking their first steps in business.
• There are three ways in which an angel investor can provide funds to a start-up business.
• The most common way is to offer the business a loan that can be converted into an
equity position in the company once the company has taken off. In such a situation, the
angel investor will require a 20%-30% equity interest that gives them a voice on the
company’s board.
• The second option is to provide funds through a convertible preferred stock option and
still be a member of the company board. The investor then defers the dividend payment
for the stocks until a future date.
• The third option is to get an equity position directly, such as a 20%-30% stake in the
company.
• The term “Angel” originated from the Broadway theater, where affluent individuals
provided money for theatrical productions.
• The wealthy individuals provided funds that were paid back in full plus interest once
the productions started generating revenue.
 • The founder of the Centre for Venture Research and also a professor at the University
of New Hampshire, William Wetzel, coined the term “Angel Investor” in 1978 after
completing a study on how entrepreneurs raised capital for businesses.
• He used the term to describe investors who supported start-up businesses with seed
capital.
Types of Angel Financers
Return on Investment (ROI) Angels
One thing about ROI angels is that, they invest only when the market is doing well.
This is because; such investors are mainly concerned with the financial rewards they will be
able to reap given the high-risk investments they make. For the ROI angels each investment is
like another significant addition to their already diversified portfolio.
Corporate Angels
These angels are most often former business executives who have either been replaced from
large corporations downsized or taken voluntary retirement. While these investors seem to be
making investments only for the sake of profitability, they are actually looking for a paid &
secured position in the company they are investing in.
High -Tech Angels
Though these investors are less in experience, the investments made by them in modern
technology is quite significant. These investors value profitability as much as they value the
exhilaration of introducing a novel technology in the market.
Entrepreneurial Angels
These are successful investors who have their own brilliant businesses, which provide them
with a steady flow of income for making high-risk investments in start-up companies. While
they make all efforts to help entrepreneurs launch their start-ups, they do not actively get
involved in the operations of the company.
Core Angels
These are investors with extensive business experience, who have accumulated enormous
amount of wealth over extended period of time. One important fact about these investors is
that, they usually tend to make high-risk investments in spite of their losses, which adds-up to
their diversified portfolio. Core Angels not just make capital investments but also useful
knowledge investments.
Professional Angels
Being professionally employed as lawyers, physicians, etc, these angels make investments into
companies of their fields. At times, they may invest in several companies simultaneously.
Professional angels are extremely valuable for initial capital investments.
Micromanagement Angels
These are considered to be the most serious types of investors. While most of them are born
with a silver spoon, most others acquire their wealth through sheer hardwork. These investors
usually seek a board position & tend to implicate the business strategies they have incorporated
in their own companies into the companies they are investing in.
Crowd funding:
This type of funding is becoming increasingly common. It involves having large groups of
people invest small amounts of money online to reach a specific financial goal.
Advantages of angel investors:
Expertise. Angel investors often have industry expertise. They may be entrepreneurs who
started a business in your field and can provide advice and coaching to help you succeed.
Connections. Angel investors may have a lot of industry connections. They may be able to
introduce you to new customers, financing sources, business partners and other relevant
contacts.
Support. Because they’re owners, angel investors typically make money only if the business
is successful. This position should motivate them to help add as much value as possible.
Deep pockets. If your small business needs financing later, angel investors might make follow-
up investments.
Alternatives. Angel investors might invest even if a business can’t get financing from a bank
or a financial institution.
Disadvantages of angel investors
Potential rejection. Even if you think your company offers outstanding growth potential or a
game-changing product, angel investors still might reject your pitch. After all, investing in a
startup is risky.
Shared control. Some angel investors might demand a large ownership position, and you may
end up selling more of the company than you had planned.
Possibly unhelpful. Do due diligence on an angel investor to ensure their interests are aligned
with yours. Ask for references and, if possible, talk with other startups that raised money from
this investor. You may prefer an angel investor who will be a business partner, help your
company grow and contribute to its success, instead of one who's just looking for a return on
their investment.
Time and effort. You’ll likely need to prepare a lot of paperwork, such as income statements
and projections, balance sheets, cash flow statements and bank statements, so be ready for a
potentially lengthy, time-consuming process.
Private Equity
Private equity is the category of capital investments made into private companies. These
companies aren’t listed on a public exchange. Typically, PE investments are made into mature
businesses in traditional industries in exchange for equity, or ownership stake. Private equity
is an alternative asset class alongside real estate, venture capital, distressed securities and more.
Alternative asset classes are considered less traditional equity investments, which means they
are not as easily accessed as stocks and bonds in the public markets.
Stages of Private Equity Fund
Private equity fund as having four phases:
Formation; Investment; Harvesting; and Extension.

Formation.
The Formation phase is when the partners develop the fund's strategy, prepare the offering
materials, fundraise, negotiate fund documents. When the fund is a first effort from a new
management team – known as an “emerging manager.” Fundraising takes a lot of time and
effort – a fundraising process can range from a few months (for established managers) to a few
years (for an emerging manager). during this time, the partners are incurring expenses in
connection with fundraising and forming the fund (travel, legal, etc.). These expenses will
typically be reimbursed to the partners when the fund closes.
Investment.
Once the fund’s legal documents are signed, the fund is “born” and the fund life (or fund term)
time clock starts ticking. Most funds provide for a 10 year term, with up to two one-year
extensions at the option of the general partner of the fund (known as the “GP” – see my post
on fund structure for more). The first three to five years of the fund’s life are known as the
“Investment Period.” The Investment Period is the most active period in a fund’s life. During
the investment period, the fund is paying the headline management fee, which is typically 2%
of fund size (this is known as committed capital).
For example, if a fund has $100 million of capital commitments, the fund will pay the GP $2
million per year (usually on a quarterly basis at the beginning of the quarter) to manage the
fund.
Harvesting
During the harvest phase, the focus is on growing the investments and exiting. Growing an
investment may require additional investment in an existing portfolio company – known as a
“follow-on” investment. The Harvest phase is typically less labor intensive than the Investment
phase.
Extension.
The Extension phase starts when the initial fund term has ended, which is usually 10 years.
Private Equity strategies
There are three key types of private equity strategies:
venture capital, growth equity, and buyouts.
Venture Capital
Venture capital (VC) is a type of private equity investment made in an early-stage startup.
Venture capitalists give the company a certain amount of seed funding in exchange for a share
of it. Venture capitalists typically don’t require a majority share (over 50 percent), which can
be attractive to founders.
Growth Equity
The second type of private equity strategy is growth equity, which is capital investment in an
established, growing company. Growth equity comes into play further along in a company’s
lifecycle: once it’s established but needs additional funding to grow. Growth equity investors
typically require a growth strategy from the company to reasonably estimate the return on
investment.
Buyouts
The final key private equity strategy—and the one that’s furthest along in the company
lifecycle—is buyouts. Buyouts occur when a mature, typically public company is taken private
and purchased by either a private equity firm or its existing management team.
There are two types of buyouts:
• Management buyouts, in which the existing management team buys the company’s
assets and takes the controlling share
• Leveraged buyouts, which are buyouts funded with borrowed money.
Advantages of PE
Cash infusion. PE groups have deep pockets and can provide the financial resources to fuel
growth. These firms may provide the capital needed to renovate a facility, buy new equipment
or launch a marketing effort.
Expertise. Private equity can supply the talent your business is lacking. These are typically
hands-on groups who will help you meet new business goals and maximize company value.
They provide experts who will roll up their sleeves and work alongside you, whether that means
launching online distribution, securing a government contract or filling some other essential
need in your business.
Connections. Some PE groups host annual mastermind events. Designed for CEOs and
company leaders, these sessions are an opportunity to share best practices and hear emerging
trends. The right PE firm is your path to a new community of peers and valuable business
connections.
Proven returns. Private equity firms are experts at creating value. One study from Boston
Consulting Group showed that two-thirds of private equity deals resulted in at least 20 percent
annual growth for the purchased company, with nearly half realizing 50 percent annual profits
or better. For investors, private equity outperformed stocks by 4 percent in the U.S. over the
last 20 years.
Commitment to success. PE firms have their own vested interests in making sure your
business does well. If a PE firm acquires or in- vests in your company, you can rely on their
commitment to ensure its future is successful.
4.5 Collective Investment scheme:
A Collective Investment Scheme (CIS), as its name suggests, is an investment scheme wherein
several individuals come together to pool their money for investing in a particular asset(s) and
for sharing the returns arising from that investment as per the agreement reached between them
prior to pooling in the money. The term has broader connotations and includes even mutual
funds. For instance, in UK, the unit trust scheme is a collective investment scheme. However,
in India, as in US, the definition of CIS excludes mutual funds or unit trust schemes etc. and is
given a strict definition in Section 11AA of the SEBI Act, 1992. CISs are regulated by the
securities market regulator – SEBI - under SEBI (Collective Investment Scheme) Regulations,
1999.
• Collective Investment Schemes pool the money of many investors to professionally
manage large portfolios of securities.
• Collective Investment Schemes are more frequently known as ‘investment funds’,
‘mutual funds’ or simply ‘funds’. These securities may include shares, debt securities,
money market securities or a combination of any of these.
• Each investor holds a pro-rata share of a portfolio and they are entitled to the profits
and losses that accrue to the securities in that portfolio.
• As per the SEBI Ordinance, 2013 if there is a collection or corpus of funds which
exceeds the value of 100 crore, then it would be considered as a collective investment
scheme.
Benefits of Collective Investment Schemes
Professional Investment Management
Collective Investment Schemes hire full-time investment professionals to manage the
investment portfolios. These managers have real-time access to crucial market information and
they are able to execute trades in a very quick and cost-effective manner.
Diversification
Collective Investment Schemes invest in a broad range of securities. This limits investment
risk by reducing the investor’s exposure to a possible decline in the value of any one security.
This implies that investors may benefit from diversification techniques that are usually only
available to large investors who are able to buy significant positions in a wide variety of
securities.
Low Cost
Collective Investment Schemes allow investors to participate in diversified portfolios at a
relatively low cost. For example, one is able to contribute towards such an investment plan
for as little as Rs.500 per month.
Personal Service
These consultants provide you with personal assistance when you need to buy or sell your
investment and they provide you with fund information that may answer any questions that you
have about your account status.
Liquidity
Collective Investment Schemes allow you to get your money back in a prompt manner at the
relevant market related prices.
Transparency
You get regular information on the value of your investment and you may be able to obtain
information on the specific investments that are made by the Collective Investment Scheme.
Which are not considered as a collective investment schemes?
• There are several schemes which are not classified as collective investment schemes.
The following are the schemes which are not considered as a CIS:
• Any insurance transaction or insurance contract for which the provisions of the
Insurance Act, 1938 would operate.
• Any form of deposits which are accepted by Non Banking Financial Companies
(NBFC).
• Any scheme which is developed by a Co-operative Society or a Society under the
Society Registration Act.
• Any contributions which are donated to a particular portfolio.
• Any form of pension fund or insurance scheme in accordance with the requirements of
the Employee Provident Fund and Miscellaneous Provisions Act, 1952.
• Any form of chit funds under the provisions of the Chit Fund Act, 1982.
• Any form of deposits which come under section 73 to 76 of the Companies Act, 2013.
Parties involved in Collective Investment Schemes

Collective Investment Management Company

• Company incorporated under the Companies Act, 2013 (or earlier, the Companies
Act, 1956).
• Company registered under the SEBI (Collective Investment Schemes) Regulations,
1999.
• The sole objective is to organise, operate and manage a Collective Investment Scheme.
Trustee
• As this scheme is a portfolio of investments of different individuals; such CIS would
be formed as a trust.
• To safeguard the interests of the unit holders a trustee would be appointed to act in the
benefit of the unit holders.
• It is the responsibility of the collective investment management company to appoint a
trustee to safeguard and act in the beneficence of the unit holders.
Manager of the Fund
• Such a scheme would be managed by a fund manager.
• This individual would be responsible for advising the unit holders of the fund.
• Valuation of the fund and other functions would be carried out by the manager of the
fund.
• Apart from this, the main responsibility of the fund manager is to manage the portfolio
of securities.
Eligibility Criteria for Registering under Collective Investment Schemes
• The following eligibility criterion has to be sufficed by the applicant for registering
under Collective Investment Schemes:
• The company must be set up either under the provisions of the Companies Act, 2013
or the Companies Act, 1956.
• The main objects of the Memorandum of Association (MOA) must be to manage
collective investment schemes.
 • The net worth of the applicant must be 5 crores or more. At the time of filing the
application, the net worth of the applicant can be 3 crores. However, within 3 years
from the date of registering the application, the net worth should be 5 crores.
• The applicant has to satisfy the requirements as per the fit and proper person test.
• Infrastructural Facilities should be present with the applicant. This would mean, the
applicant should have a leased premises or an own premises to carry out the
activities under the CIS.
• Directors and other key management individuals of the company must have integrity.
• Directors and other key management individuals should not be convicted or charged
with any offences involving moral turpitude or criminal convictions under any form of
securities law.
• 50% of the directors should be independent. They must be related to the controllers of
the Collective Investment Management Company.
• The applicant for registering under collective investment schemes must not be rejected
in the past.
• One of the directors of the collective investment management company must be a
representative of the trust. Such director should not be retired.
• The company (Collective Investment Management Company) must not be or act as a
representative of any other form of scheme.
Procedure for Registering as a Collective Investment Management Company
Application
• An applicant must first make an application in ‘Form A’ to secure the certificate and
grant of registration to act as a CIS company. Any applicant wanting to start a scheme,
which would be deemed as a CIS should also make an application in ‘Form A’. This
would be in accordance with the requirements of section 11AA of the act.
Fee
• As per section 6 of the act, the applicant must also pay the fees for registering as a
collective investment management company. The fees to be paid by the application is
a non-refundable amount of Rs. 25,000/-. Provisional registration fee has to be paid is
Rs. 5 Lakh. An application for grant of Collective Investment Management Company
is Rs. 10 Lakh. Apart from this, the filing fees for the offer document is Rs. 25,000/-.
Mode of Payment of the Fee
• The fee must be paid as a Bank Draft in favour of ‘The Securities and Exchange Board
of India’ Mumbai or any of the regional offices where the application is submitted.
Confirmation
• The application for registering under Collective Investment Schemes must confirm with
the requirements of the board. If there are any forms of discrepancies with the
application, then the application would be rejected.
Appeal
• If the application is rejected, then the applicant has to provide reasonable cause as to
why the application should be accepted. This must be carried out within a period of 30
days from the date of rejection of the application. The board may ask the applicant to
provide other documents.
Certificate
• If the application confirms with the requirement, then the board would ask the applicant
to pay the registration fee for the certificate. Once the registration fee is remitted to the
board, they would provide a certificate in ‘Form B’.
Terms and Conditions
• There are several terms and conditions which have to be followed by the company. This
would be placed by the board for the applicant to follow.
4.6 Qualified Institutional Buying:
A qualified institutional buyer (QIB) is a corporation that is deemed to be an accredited investor
as defined in the Securities and Exchange Commission’s (SEC) Rule 501 of Regulation D. A
QIB owns and invests a minimum of $100 million in securities on a discretionary basis; the
broker-dealer threshold is $10 million.
Qualified Institutional Buyers are those institutional investors who are generally perceived to
possess expertise and the financial muscle to evaluate and invest in the capital markets.
The range of entities deemed qualified institutional buyers (QIBs) include savings and loans
associations (which must have a net worth of $25 million) and banks, investment and insurance
companies, employee benefit plans and entities completely owned by accredited investors.
‘Qualified Institutional Buyer’ shall mean:
• Scheduled commercial banks;
• Mutual funds;
• Foreign institutional investor registered with SEBI;
• Multilateral and bilateral development financial institutions;
• Venture capital funds registered with SEBI.
• Foreign Venture capital investors registered with SEBI.
• State Industrial Development Corporations.
• Insurance Companies registered with the Insurance Regulatory and Development
Authority (IRDA).
• Provident Funds with minimum corpus of Rs.25 crores
Regulations on a Qualified Institutional Buyers
• Any listed company that is eligible to raise funds in the domestic market can place its
securities with QIBs. However, the equity shares of this listed company should be
available on a stock exchange. Also, they should comply with the necessary regulations
of a minimum public shareholding pattern.
• It mentions that if QIBs subscribes them, then such institutional buyers cannot be
promoters or related to promoters of the issuer directly or indirectly. Moreover, every
placement to QIBs is on a private placement basis.
• In a financial year, the amount raised cannot exceed five times the issuer’s net worth at
the end of its previous financial year.
• In case of multiple placements of specified securities, it is mandatory to have a six
months gap between the two placements.
Advantages :
• Unlike traditional investments which takes time and requires SEBI’s approval, QIB can
be settled quickly, sometimes in a week’s time.
• There is no requirement to hire a team of auditors, bankers to invest. Some overheads
are reduced.
Disadvantage:
• These QIB’s can own substantial stake in a company and it may dilute existing share
holders interest.
4.7 Qualified Institutional Placement:
Qualified institutional placement (QIP) is a capital-raising tool, primarily used in India and
other parts of southern Asia, whereby a listed company can issue equity shares, fully and partly
convertible debentures, or any securities other than warrants which are convertible to equity
shares to a qualified institutional buyer (QIB).
Apart from preferential allotment, this is the only other speedy method of private placement
whereby a listed company can issue shares or convertible securities to a select group of persons.
QIP scores over other methods because the issuing firm does not have to undergo elaborate
procedural requirements to raise this capital.
 • Qualified institutional placement (QIP) is a process of fundraising whereby a listed
company can issue equity shares, fully and partly convertible debentures, or any
securities other than warrants to a Qualified Institutional Buyer (QIB).
• Apart from preferential allotment, this is the only other method of private placement
whereby a listed company can issue shares or convertible securities to a select group of
persons.
• QIP is also a less expensive mode of raising capital than, say, an IPO, FPO or rights
issue.
• However, it scores over other methods, as it does not involve many of the common
procedural requirements such as the submission of pre-issue filings to the market
regulator.
Why was it introduced?
• The Securities and Exchange Board of India (Sebi) introduced the QIP process in 2006,
to prevent listed companies in India from developing an excessive dependence on
foreign capital.
• The complications associated with raising capital in the domestic markets had led many
companies to look at tapping the overseas markets via Foreign Currency Convertible
Bonds (FCCB) and Global Depository Receipts (GDR) to fulfil their needs.
• To keep a check on this process and to give a push to the domestic markets, QIPs were
launched.
Regulations governing a QIP:
• It is mandatory for the company to ensure that there are at least two allottees, if the size
of the issue is up to Rs 250 crore and at least five allottees if the company is issuing
securities above Rs 250 crore.
• No individual allottee is allowed to have more than 50% of the total amount issued.
• Also no issue is allowed to a QIB who is related to the promoters of the company.
Advantages
• It is advantageous for the issuing company where the time taken to complete the QIP
process is lesser as there is no long wait for documents approval by SEBI. The whole
process can be completed within 4-5 days.
• This is a cost-effective process as it does not require employing a team of bankers,
advocates, auditors and solicitors for approvals.
• QIBs can buy large stakes in a company where they have the advantage to exit and sell
the stocks at any point of time post listing.
Disadvantages
• The qualified institutional placements allow institutional buyers to hold a large stake in
the company. As a result, it dilutes the stakes of existing shareholders. Therefore,
companies with large promoter holdings prefer this method over those with lower
promoter stakes because further dilution of stakes can risk the company’s management
control.