K.P.

B HINDUJA COLLEGE OF COMMERCE

VENTURE CAPITAL

VENTURE CAPITAL

PRESENTED BY:PRESENTED BY:F.Y.BFM GROUP:1 F.Y.BFM GROUP 1

CONCEPT
EARLY FINANCING
NEW AND YOUNG ENTERPRISES

DEFINITION
LONG TERM FUNDS
FINANCES HI-TECH PROJECTS INVOLVES HIGH RISK GIVES HIGH PROFIT

FEATURES
EQUITY PARTICIPATION
LONG TERM INVESTMENT PARTICIPATION IN MANAGEMENT

The Role of the VC

Board involvement Management recruitment Future capital raising Access to business network Strategy development Patience!

INVESTMENT STAGES
Most VCs have a preference for a particular investment stage.

FIVE STAGES: SEED START-UP EARLY EXPANSION MEZZANINE/ BRIDGE

STAGE/CHARACTERISTIC
STAGE SEED INVESTMENT $5O - 500K CHARACTERISTICS - Founder(s) only - No product - No customers - Primary risk: R&D

STARTUP

$500K - $1MM

- No revenues - Limited customer interest - Some capital invested

STAGE/CHARACTERISTIC
STAGE EARLY INVESTMENT $1MM - $3MM CHARACTERISTICS - Most of team in place - Limited revenues - Not profitable - Primary risk execution - Meaningful revenues - Achieving profitability - Growing customer base - Primary risk: competition

EXPAN SION

$3MM-$10MM

STAGE/CHARACTERISTIC
STAGE MEZZA NINE/ BRIDGE INVESTMENT CHARACTERISTICS

$10MM - $20MM

- Significant revenues - Profitable - Industry player - IPO in 6-12 months - Risk much lower

SCREENING MARKET

INVESTMENT PROCESS
PRODUCT MANAGEMENT ENVIORN -MENT

EVALUATION EXPECTED RETURN EXPECTED RISK

APPROVAL

DECISION

TARGETD INDUSTRIES
Most of the $10 billion invested by VCs in 1997 was concentrated in five industries.
INFORMATION TECHNOLOGY MEDICAL SERVICES/DEVICES COMMUNICATIONS BIOTECHNOLOGY SOME RETAIL

HOW DO VCs MAKE MONEY?

Source of VC Income: How do VCs earn
Collect management fees from L.P.s - 2 1/2% annually. Share profits with L.P.s - 20/80 split on investment gains. their income?

5% 95%

Mgmt. Fee

Investment Gains

WHAT DO VCS WANT TO SEE?

Venture capitalists tend to focus on five specific areas when evaluating a company:

Areas of Focus:
Management Marketplace Competition Business

Economics Risks

DEVELOPMENT IN INDIA
Introduced in 1987. Operated by IDBI. In the same year ICICI also started VC activity. Government levied 5% cess on all payments related to VC.

EXIT STRATEGIES
Sale or Merger
Most likely exit

Initial Public Offering

Small fraction go this way

Redemption
Least attractive

Management buy-out
Generally not possible

EXIT ROUTE
Going public Sale of shares to entrepreneurs Sale of company to another company Finding a new investor Liquidation

GROUP MEMBERS
SANIYA DHUKA 7 KANCHI JAIN 19 SHIVANGI JAIN 29 NAVIN TALREJA-56