Project Report On Venture

Capital&Private Equity in India

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INTRODUCTION
 
VENTURE:
A business project or activity
specially one that involves risk.
CAPITAL : 
Fund employed in any business activity .
 
Most important factor of production. No
economic entity can function without
capital.
VENTURE CAPITA L:
Venture capital
is a type of  privateequitycapital typically
provided by professional, outside investors
to new, growth businesses
VENTURE CAPITALISTS
:A
venture capitalist
(VC) is a person who makes such
investments,these include wealthy inv
estors, investment banks, other finan
cialinstitutions other partnerships. 
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Venture capital is a means of financing fast-

growing private companies.Finance may be
required for:The start up,Development/
expansion, &ModernizationOf a company.
Growing businesses always require
capital. There are anumber of different
ways to fund growth. These include the
owner's own capital, arranging debt
finance
or s e e k i n g   a n   e q u i t y   p a r t n e r ,   a s   i s   t
h e   c a s e   w i t h   v e n t u r e   c a p i t a l . With
venture capital, the venture capitalist
acquires an agreed proportion of the equity
of the company in return for the requisite
funding. Equity financeoffers the
significant advantage of having no interest
charges. It is
patientcapital that seeks a return throug
h long-term capital gain rather 
thani m m e d i a t e   a n d   r e g u l a r  
i n t e r e s t   p a y m e n t s . Venture
capital investors are exposed, therefore, to
the risk of
thecompany failing. As a result the ven
ture capitalist have to invest incompani
es that have the ability to grow very
successfully and give higher-than-average
returns to compensate for the risk.Venture
Capital may be a viable source of
financing for a business.While they
generally invest in businesses that are
more established andongoing, some do
fund start-ups. In general they tend to
invest in high-technology businesses such
as research and development, electronics
andcomputers. Venture Capitalists de
al more in large sums of money,numb
ering into the millions of dollars, so they
are generally well suited
to businesses that are going grand from the s
tart or have grown.

TASKS OF VENTURE
CAPITALISTS
When venture capitalists invest in a business
they :
Become part-owners and typically require
a seat on thecompany's board of directors.
They tend to take a minority share in the
company andusually do not take day-to-day
control.
Professional venture capitalists act as
mentors and aim
to provide support and advice on a range of 
managementand technical issues.
Assist  the company to develop its full p
otential.T h e   m a n a g e m e n t   s u p p o r t   i s   t
h e   m o s t   i m p o r t a n t contribution of a ven
ture capitalist. There are manysources of 
capital, but only a venture capitalist can 
provide experienced management input gained b
yhelping many other companies successfully
conquer theinevitable problems and growing
pains.
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HISTORY
Beginnings of modern venture capital:
The earliest origins of venture capital can be
traced back to the
medievalIslamic mudaraba partnership. I
n terms of protecting the entrepreneur,s
haring the risks, losses and profits th
e two systems of finance areremarkabl
y similar.General
Georges Doriot
is considered to be the father of the
modernventure capital industry.

 
 

ROLES WITHIN A
VENTURE
CAPITALFIRM
 
1Venture capitalgeneral partners: (Also
known in this case as
"venturecapitalists" or "VCs") are the
executives in the firm. In other words
theinvestment professionals. Typical
career backgrounds vary, but VCs comefrom
either an operational or a finance
background.VCs with an operational ba
ckground tend to be former chief  execu
tivesat firms similar to those which the
partnership finances and other senior
executives in technology companies.VCs
with finance backgroundscome from
investment banks, M&A firms, and other
firms in the corporateinvestment and finance
space.
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.Limited partners: Investors in venture
capital funds are known aslimited  partners.
This constituency comprises both high net
worth individuals andinstitutions with large
amounts of available capital, such as state
and
private pension funds,insurancecompanies, 
and pooled investmentvehicles,called fund
of funds or mutual funds.
3. Venture partners and entrepreneu
r-in-residence
(EIR): Other  positions at venture capital f
irms include
venture partners
and
entrepreneur-in-residence
(EIR).Venture partners "bring in deals" 
andreceive income only on deals they work
on (as opposed to
general partners
who receive income on all deals).EIRs are
experts in a particular domain and
performdue
diligenceon potential deals. EIRs are engage
d by VC firms temporarily (six to 18months
) and are expected to develop and pitch
startup ideas to their hostfirm (although
neither party is bound to work with each
other). Some EIR's
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move on to roles such as Chief
Technology Officer (CTO) at a
portfoliocompany
.4.Associate: The "associate" is
the typical apprenticewithin a venture
capital firm. After a few
successfulyears, an associate may mov
e up to the "senior associate"  positio
n. The next step from senior associat
e is "principal," typically a partner tra
ck  position. Alternatively, there are many p
re-MBAassociate roles that are used solely
for the purpose of deal sourcing, and the
associate is usually expected tomove on
after two years.. 
STRATEGIC ROLES
Serving BoardBusiness ConsultantFinancier 
NETWORKING ROLES
•
Management recruiter 
•

Professional contact
•

Industrial contact
SOCIAL/ SUPPORTIVE
•

Coach/ Mentor 
•
Conflict resolver 

FEATURES OF
VENTURE CAPITAL
The main features of venture capital are:
Long-time horizon
: In general, venture capital undertakings
take a longer time — say, 5-
10 years at a minimum — to come ou
t commerciallysuccessful; one should,
thus, be able to wait patiently for the
outcome of theventure
.
Lack of liquidity
: Since the project is expected to run at
start-up stage for several years, liquidity
may be a greater problem.
High risk 
: The risk of the project is associated with
management, productand operations.Unlike
other projects, the ones that run under the
venture finance may besubject to a higher
degree of risk, as their result is
uncertain or, at best, probable in nature.
High-tech
: Venture capital finance caters largely t
o the needs of first-generation
entrepreneurs who are technocrats, with
innovative technological busine ideas that
have not so far been tapped in the industrial
field.However, a venture capitalist looks not
only for high-technology but theinnovativeness
through which the project can succeed.
Equity participation and capital gains
: A venture capitalist invests hismoney in
terms of equity or quasi-equity. He does not
look for any dividendor other benefits, but when
the project commercially succeeds, then he
canenjoy the capital gain which is his main
benefit. Otherwise, he will be losing his entire
investment.

Participation in management
: Unlike the traditional financier or
banker,the venture capitalist can provide 
managerial expertise to entrepreneurs be
sides money. Since many innovations and in
ventions cannot becommercialized due to
lack of finance, venture capital finance
acts as
astrong impetus for entrepreneurs to dev
elop products involving newer technologi
es and to commercialize them.
.There are  basically fourelements in financi
ng ofventures which are studied indepth

:
y the venture capitalists. These are

1. Management 
:The strength, expertise & unity of theke
y  people on the  board  bringSignificant 
credibility to the company. The members 
are to  be mature, Experienced possessing 
workingknowledge of
business and capable of taking potentiall
y high risks.
2. Potential of capital gain
 
An above average rate of return of
about 30 40% is
required  byventure capitalists. The rate of
return also depends upon thestage of the b
usiness cycle where funds are  being
deployed. Earlier stage, higher is the risk
and hence the return. 
3. Realistic Financial Requirement and 
Projections:
The venture capitalist requiresa realistic v
iew about the  present health of the organ
ization as well as future
projections regarding scope, nature and  p
erformance the company in terms of
scaleof operations.
Features of Private Equity:
1.A strong management team:investors play
their best on a good idea,yet they also want
assurance that the right people are in place to realize
the idea’s full potential.
2.Quality Revenue and Earnings Streams:PE
firms will assess the quality of your company`s
resources,revenue and earnings.
3.A Solid Business to build on:PE firms are
attracted to companies that are well run,yet still
present opportunities for growth or room for
improvement.A business that has spent 1$ million
on bids and proposals in the last year and has a high
probability of winnig many of these contracts offers
a good growth opportunity.
4.A diversitfied customer base:A diverse
customer base is typically attractive to PE
investors,since diversity helps reduce risk.However,
there are times when a high concerntration of
customers in a market is desirable,especially if the
PE group is eager to gain a foothold in that
market.No matter how diversified your customer
base,PE investors will expect that both your
customer acquisition costs and your margins by
customer type align with industry standards.

Conclusion:
Private equity firms can buy companies from any
industry while venture capital firms tend to focus on
startups in technology,biotechnology,and clean
technology-although not necessarily. Private equity
firms also use both cash and debt in their
investment,whereas venture capital firms deal with
equity only.All venture capital is private equity,but
not all private equity is venture capital. In general
for private equity investors, the more established the
business, the lower the risk. Venture capital is a
form of private equity investment that focuses on
early stage, high growth businesses.