IFS Module 3

IFS
Module-3-2019
www.bschool.cms.ac.in
Angel, VC, and PE Investing-Case Study
• A mineral water producing company has proposed an
investment of Rs. 50 crores to set up a water bottling plant
including sourcing, packaging and distribution.
• There are four people involved here who can be termed as
promoters. They contribute 5 crore each.
• The remaining money should be raised. They approach a
bank/FI, they receive a loan of Rs. 10 crore.
• How to raise remaining Rs. 20 crore? IPO ? (all other source of
debt funds are exhausted.)
• IPO- stringent procedure, lengthy processes, High fees, can
not get through SEBI norms as start up company. www.bschool.cms.ac.in
Angel Investors
• Angel Investors could be an individual or a
group of individuals with similar objectives
who invest small amounts (in lakhs) and start
mentoring/incubating process over a period of
time (may be 2 to 3 years) ready the business
for the next big round of funding.
• E.g. Your parents, Your uncle, Your Education
Institute
Venture Capital Companies
• VC companies are professional institutions that support the
innovative projects and promising business ideas through raising
funds from risk taking investors. They are the lifeline for
entrepreneurs and start-up companies that struggle for funds.
• E.g. Google, Facebook, Ola cabs, Zoomin cabs, Android App, Café
Caffee Day are examples of innovative businesses.
• E.g. ICICI Venture fund, UTI Venture funds management, Can bank
Venture fund.
• E.g. SKS Micro finance, Just Dial, Bigbasket.com, Redbus.in,
Flipkart.com funded by VC.
• VC companies invest in risky businesses or projects which may be
innovative where traditional banks or FI would have rejected.
Differentiate between Angel and VC investing
Angel Investing VC Investing
• Typical wealthy individuals • VCs invest other investors’
• Invest their personal money money
• Raise funds from risky investors
• Small amount (in lakhs)
• Invest high amount (in crores)
• Will not be on the board of
• Involve in business by
company becoming board members
• Takes mentoring role • Guide through taking decision
• working hard in initial • Drives business for revenue &
stages profit exits
Private equity investors (PE investors)
• PE investors invest into a business at the later
stages/matured stage of a business.
• They invest in existing companies with existing
products and proven cash-flows.
• They try to restructure the existing business by
trying to optimize the performance.
• They even would be largely instrumental in
transforming companies on the brink of
bankruptcy into profitable enterprises.
Exit route for VC/PE companies
• Companies eventual IPO (offer for sale) or
• offering their stake to the promoters through buy-back
arrangement
• Strategic stake sale to another investors e.g. Private
Equity Investors.
• Note: Today, VC invests not just in start-ups but they also

invest in already existing companies those may or may
not be listed on stock exchanges. www.bschool.cms.ac.in
Who said investment in start ups is
unprofitable?
• TVS Capital Funds Ltd. sold its investment in Wonderla
Holidays Ltd. The investment was made at Rs. 125 per
share before its IPO during May 2014. The company exited
at the price of Rs. 384 during June 2016. (over 200% profit).
• Naspers paid Redbus Rs. 100 million (around Rs. 600 crore)
on exit.
• Mr. Narayan Murthy and Mr. Azim Premji’s investment in
Manipal Global Education Services (MGES) also received
handsome returns on their exit.
Sources of Finance
Part A
Sources of Finance
Internal Working capital Miscellaneous

Securities Term loans
Accruals advances sources
• Equity
• Preference
• Bonds
Part B
Sources of Finance
Equity Debt
• Equity • Bonds
• Preference • Term loans
• Internal • Working capital advances
accruals • Miscellaneous sources
Basic Differences between Equity and Debt
Equity Debt
 Equity shareholders have a  Creditors (suppliers of debt) have a
residual claim on the income and fixed claim in the form of interest
the wealth of the firm. and principal payment.
 Dividend paid to equity  Interest paid to creditors is a tax
shareholders is not a tax deductible payment.
deductible payment.
 Equity ordinarily has indefinite  Debt has a fixed maturity.
life.
 Equity investors enjoy the  Debt investors play a passive role –
prerogative to control the affairs of course, they impose certain
of the firm. restrictions on the way the firm is run
to protect their interest.
Objective of SEBI
• With the prime objective of (SEBI Act , 1992)

 Protecting the interests of investors in securities,
 Promoting the development of, and
 Regulating, the securities market and for matters
connected therewith or incidental thereto
 Self Regulation & regulation by exception
contd.
11.Substantial acquisition of shares and takeovers

12.Underwriters &Bankers to issue
13.Venture Capital Funds
14.To Issue guidelines in respect of Primary and secondary
markets
15.Information discloser, operational transparency and investor
protection
 Development of Financial Institutions
 Pricing of issues
 Bonus issues
 Preferential Issues
 Financial Instruments
 Firm allotment and transfer of shares
 Buy-back of shares
13
Organisation & Structure
National Stock Exchange of India
Bombay Stock Exchange
Over the counter Exchange of India
National and Regional Exchanges in India
Indian Stock Exchange Services Corporation
Federation of Indian Stock Exchanges
Interconnected Stock Exchanges Market System
 Major Stock Indices:

 BSE National Index, CMIE Index, CRISIL Index, SENSEX, NSE 50
Index,ET Index, Dolex, Credit Capital Debt Index 14
Corporate Governance and SEBI
• Three kinds of disciplines on the corporate:
 Self Discipline
 Market Discipline
 Regulatory Discipline
• Governance and Value Creation:

(i) The strength of stakeholder relationships
(ii) Wealth created is evenly distributed across all classes of
stakeholders
(iii) Management quality
(iv) Stability of future wealth creation 15
Internal Accruals
Internal accruals of a firm consist of depreciation amortisation,

and retained earnings.
Pros
• Readily available
• No dilution of control
Cons
• Opportunity cost is high

Equity Capital
Equity capital represents ownership capital as equity shareholders
collectively own the company. They enjoy the rewards and bear the
risks of ownership
• Authorized capital
• Issued capital
• Subscribed capital
• Paid-up capital
• Par value
• Issue price
• Book value www.bschool.cms.ac.in
Rights of Equity Shareholders
• Right to Income
• Right to Control
• Pre-emptive Right
• Right in Liquidation
Shareholder Voting
• Majority Rule Voting

• Proportionate Rule Voting
Methods of Offering
There are different ways in which a company may raise

finances in the primary market
• Public offering
• Rights issue
• Private placement
• Preferential allotment
Initial Public Offering (IPO)
The first public offering of equity shares of a company, which is
followed by a listing of its shares on the stock market, is called the IPO
Benefits Cost
 Access to a larger pool of capital  Dilution

 Respectability  Loss of flexibility
 Lower cost of capital compared  Disclosures and accountability
to private placement
 Liquidity  Periodic costs
The IPO Process
From the perspective of merchant banking the IPO process consists of

four major phases:
• Hiring the merchant bankers
• Due diligence and prospectus preparation
• Marketing
• Subscription and allotment
Seasoned Equity Offering
For most companies their IPO is seldom their last public issue. As
companies need more finances, they are likely to make further trips to
the capital market with seasoned equity offerings, also called secondary
offerings.
While the process of a seasoned equity offering is similar to that of an
IPO, it is much less complicated. The company may employ the
merchant bankers who handled the IPO. Further, with the availability of
secondary market prices, there is no need for elaborate valuation.
Finally, prospectus preparation and road shows can be completed with
less effort and time than required for the IPO.
Summary Comparison of the Various Methods
Public Rights Private
Preferential
Issue Issue Placement Allotment
• Amount that can Large Moderate Moderate Moderate

be raised
• Cost of issue High Negligible Negligible Negligible
• Dilution of Yes No Yes Depends

control
• Degree of Large Irrelevant Small No
underpricing
• Market Negative Neutral Neutral Neutral
perception www.bschool.cms.ac.in
introduction
• Securities are traded after being initially offered to the public
in the primary market and/or being listed on the stock
exchange.
• The stock exchanges provides trading platform and for
clearing and settlement as prescribed by SEBI.
• Two mediums- OTC and exchange-traded market.
• The OTC market are the informal markets where trade are
negotiated. E.g. government securities
• Exchange-traded market- floor traders execute their
transactions behalf of their clients.
• Video- Floor Trading
Main objectives of NSE
• To provide nation wide equal access and fair, efficient,
completely transparent securities trading system (fully
automated electronic screen based trading system).
• To provide shorter settlement cycles and book entry
settlement system.
• To bring Indian stock market in line with the
International markets
• To promote the secondary debt instruments such as
government and corporate bonds.
Over the counter exchange of India (OTCEI)
• Set up in 1992. first stock exchange in India to introduce scree-based

automated trading system. It is promoted by UTI, ICICI, IDBI, IFCI, LIC,
GIC, SBI Caps, and Canbank.
• Two players- Members and Dealers who can perform the functions
broking, trading on their own accounts. SCB, mutual funds, Fis, merchant
bankers, venture capital funds, and NBFCs having a minimum net worth
of 3 crore can become member of OTCEI.
• OTCEI is a cash and retail market for small investors and small
companies.
• It follows T+3 settlement system.
• Objective- to cater unlisted companies; to help companies to raise
capital from the market at cheapest cost; to help investors to access the
market safely and conveniently; to eliminate the problems of delayed
settlement, illiquid securities, unfair prices.
Primary Capital Market
• Issues
 Public Issue- IPO, FPO
 Right Issue- When an issue of securities is made by an issuers
to its shareholders existing as on a particular date fixed by the
issuer (i.e. record date).
 Bonus Issue- when an issuer makes an issue of securities to its
existing shareholders as on a record date. Company’s free
reserve or share premium account
 Private Placement- (not exceeding 49)
Preferential allotment- to selected group of persons
Qualified Institutions Placements (QIB)
IPO
• An IPO is when a company which is presently not listed at any stock

exchange makes either a fresh issue of shares or makes an offer for
sale of its existing shares or both for the first time to the public.
Through a public offering, the issuer makes an offer for new
investors to enter its shareholding family.
• The shares are made available to the investors at the price
determined by the promoters of the company in consultation with
its investment bankers.
• The successful completion of an IPO leads to the listing and trading
of the company’s shares at the designated stock exchanges.
FPO
• Fresh issue of shares by an already-listed company is called a
Follow-on Public Offer (FPO).
• Typically, when a company requires capital for its
growth/expansion or it wishes to increase the market float, but
does not wish to reach its existing shareholders for a variety of
reasons (the existing shareholders may not be interested, the base
of existing shareholders is small to be able to meet the company’s
capital requirements, the promoters are not in a position or are
not interested in maintaining their stake which is accomplished
through a rights offer, it makes a follow-on public offering.
• The Government uses the FPO route to divest part of its
shareholding.
IPO
• Unlisted issuer making public issue
i) Entry Norm I (Profitability Route)-
• Net tangible assets of at least 3 crores in each of the preceding 3 full
years.
• Distributable profits in at least 3 of the immediately preceding 3 full
years.
• Net worth of at least 1 crore in each of the preceding 3 full years.
• If the company has changed its name within the last 1 year, at least
50 percent revenue for the preceding 1 year should be from the
activity suggested by new name.
• The issue size does not exceed five times the pre-issue net worth as
per the audited balance sheet of the last financial year.
IPO
ii) Entry Norm (QIB route)
• Issue shall be through book-building route, with
at least 50 percent to be mandatory allotted to
the qualified institutional buyers (QIBs).
• The minimum post-issue face value capital shall
be 10 crores or there shall be a compulsory
market-making for at least 2 years.
IPO
iii) Entry Norm (appraisal route)
• The project is appraised and participated to the extent of 15
percent by financial institutions/banks of which at least 10
percent comes from the appraiser.
• The minimum post-issue face value capital shall be 10 crores
of there shall be a compulsory market-making for at least 2
years.
iv) In addition to satisfying the aforesaid entry norms, the

issuer company shall also satisfy the criteria of having at least
1000 prospective allottees in its issue.
FPO
i) If the company has changed its name within
the last 1 year, at least 50 percent revenue for
the preceding 1 year should be from the
activity suggested by the new name.
ii) The issue size does not exceed five times the
pre-issue net worth as per the audited
balance sheet of the last financial year.
Pathshala- MHRD Project
• https://www.youtube.com/watch?v=j-
MLw9mLblc
Types of Issues: Fixed Price & Bookbuilding
• Fixed Price Issues

An issuer company is allowed to freely price the issue.
The basis of issue price is disclosed in the offer
document where the issuer discloses in detail about the
qualitative and quantitative factors justifying the issue
price. The Issuer company can mention a price band of
20% (cap in the price band should not be more than 20%
of the floor price) in the Draft offer documents filed with
SEBI and actual price can be determined at a later date
before filing of the final offer document with SEBI/ROCs
Price Discovery through Book-building
Process
• “Book Building” means a process undertaken by which a
demand for the securities proposed to be issued by a body
corporate is elicited and built up and the price for the securities
is assessed on the basis of the bids obtained for the quantum of
securities offered for subscription by the issuer. This method
provides an opportunity to the market to discover the price for
securities.
• The process is named so because it refers to collection of bids

from investors, which is based on a price range. The issue price
is fixed after the closing date of the bid.
Price Discovery through Book-building
Process
• A company planning an IPO/FPO appoints a merchant
bank as a book runner.
• A particular time frame is fixed as the bidding period.
• The book runner then builds an order book that collates
bids from various investors. Potential investors are allowed
to revise their bids at any time during the bidding period.
At the end of bidding period the order book is closed and
consequently the quantum of shares ordered and the
respective prices offered are known. The determination of
final price is based on demand at various prices.
Book building has become the preferred
route of raising capital
YEAR BOOKBUILDING FIXED PRICE TOTAL

NO.OF AMOUNT % NO.OF AMOUNT % NO.OF AMOUNT
IPOs (Rs.crore) IPOs (Rs.crore) IPOs (Rs.crore)
2003-04 9 2641.04 82.8 10 550.07 17.2 19 3191.10

2004-05 15 14507.04 98.9 8 155.28 1.1 23 14662.32
2005-06 53 10225.43 94.7 23 572.45 5.3 76 10797.88
2006-07 65 23469.07 99 11 237.10 1 76 23706.16
2007-08 74 41068.98 99.4 10 254.47 0.6 84 41323.45
2008-09 17 1959.92 96.4 4 74.07 3.6 21 2033.99
2009-10 39 24948.31 100 0 0.00 0 39 24948.31
2010-11 50 33028.27 99.8 2 69.50 0.2 52 33097.77
2011-12 28 4915.02 98.8 1 60.00 1.2 29 4975.02
BookBuilding
Open Bookbuilding
In book-built issues, it is mandatory to have an online display of the demand and bids during the bidding period.
This is known as open book system. (Under closed book building, the book is not made public and the bidders
have to take a call on the price at which they intend to make a bid without having any information on the bids
submitted by other bidders). As per SEBI, only electronic facility is allowed to be used in case of book building
• PriceBand
The offer document may have a floor price for the securities or a price
band within which the investors can bid. The spread between the floor
and the cap of the price band can not be more than 20%. In other words,
it means that the cap should not be more than 120% of the floor price.
The company decides the price band in consultation with the investment
bankers, and typically after undertaking a pre-marketing exercise with
some leading QIBs.
Qualified Institutional Buyers (QIBs)
QIBs are those institutional investors who are perceived to possess expertise and the financial strength to evaluate and invest in the
capital markets. A QIB is defined by SEBI as
a)
public financial institution as defined in section 4A of the Companies Act, 1956;
b)
scheduled commercial banks;
c)
mutual funds;
d)
foreign institutional investor and sub-account (other than a sub-account which is a foreign corporate or foreign individual) registered with SEBI;
e)
multilateral and bilateral development financial institutions;
f)
venture capital funds registered with SEBI.
g)
foreign venture capital investors registered with SEBI.
h)
state Industrial Development Corporations.
i)
insurance Companies registered with the Insurance Regulatory and Development Authority (IRDA).
j)
provident Funds with minimum corpus of Rs. 25 crores
k)
pension Funds with minimum corpus of Rs. 25 crores)
l) National Investment Fund set up by resolution no. F. No. 2/3/2005-DDII dated November 23, 2005 of the Government of India published in the
Gazette of India
m)
insurance funds set up and managed by army, navy or air force of the Union of India
n)
Insurance funds set up by Department of Posts, India such as Postal Life Insurance Fund (PLIF) and Rural Postal Life Insurance Fund (RPLIF)
Applications Prerequisites
1. Demat Account- issued and tradable only in demat

account- dematerialization
• There are two depositories in the country-
• National Securities Depository Ltd. (NSDL) and Central
Depository Services (India) Ltd. (CDSL).
• Both have An extensive network of authorized
Depository Participants (DPs). An investor can open a
demat account with any of these DPs. The investor
should fill in his the correct DP ID and Client ID details
in the application forms.
2. Permanent Account Number (PAN)
Where the bids are for Rs. 50,000 or more, the
bidder, or in case of a bid in joint names, each of
the bidders, should mention his/her PAN allotted
under the Income Tax Act.
3. Bank Account/DD
Applications for IPO/FPOs are valid only if
payment is made through a cheque or a demand
draft. Application money cannot be paid in cash.
Process of Applying in an IPO/FPO
An investor needs to first obtain an IPO/FPO application
form. Forms are normally available from share brokers, lead
managers, syndicate members and collecting banks.
Application forms can also be picked up from the vendors at
major commercial streets in most towns (for example
outside the BSE Ltd.)
In the case of fixed price issues, the application form along
with a cheque/demand draft for the requisite amount has to
be deposited with the designated collecting bankers to the
issue, whose names and addresses are printed on the
application form.
ASBA
• In an endeavor to make the existing public issue process more efficient,

SEBI introduced a supplementary process of applying in public issues,
viz., the “Applications Supported by Blocked Amount (ASBA)” process.
The ASBA process is available in all public issues made through the book
building route, as well as for all rights issues. ASBA co-exists with the
current process, wherein cheque is used as a mode of payment.
• Investors can obtain ASBA bid-cum-application forms from Self Certified
Syndicate Banks (SCSBs). These forms are also easily available to
investors from the website of BSE or NSE.
Merchant Banker
• LM/ BRLM
• Underwriting
• RTA-Registrars & Transfer Agent
• Bankers
• Compliance Officers
• Syndicate members
• Rating/ Grade Agencies -1,2,3,4&5
• Distributors/Advisors/Stock Brokers/Sub-brokers
ICDR
• Issue of Fresh issue of Equity
• Offer for sale-Justdial-2013,Promoters stake
• Both—Café Coffeee day, Ujjivan financial
services
Secondary market
• Securities are traded after being initially offered to the
public in the primary market and/or being listed on the
stock exchange.
• The stock exchanges provides trading platform and for
clearing and settlement as prescribed by SEBI.
• Two mediums- OTC and exchange-traded market.
• The OTC market are the informal markets where trade
are negotiated. E.g. government securities
• Exchange-traded market- floor traders execute their
transactions behalf of their clients.
Indian stock exchanges
• There are 20 organized stock exchanges in India. Among them 3 are
national and rest are Regional stock exchanges (RSEs).
• Mainly NSE and BSE.
• BSE- established as “The Native share & Stock Brokers Association” in
1875. Asia’s first stock exchange. Popular equity index is S&P BSE
SENSEX- India’s most widely traded benchmark index.
• NSE- incorporated in November 1992 as a tax-paying company. Its
network is expanded to more than 1500 locations that supports 2,30,000
terminals. Two segments: Wholesale debt market segment (WDMS)
which caters to banks, FIs and other institutional participants to trade of
PSU bonds, Govt. securities, CPs, CDs, call money etc. Capital Market
segment (CMS) which deals in equities, convertible debentures etc.
Investors in the market
traders investors
• Short investment horizon • Long term investment horizon
• Max. returns through buy and • Max. returns through buy and
sale hold
• Take advantage of fluctuation in • Take advantage of
the price fundamental factors like PE
• Follows technical analysis ratio, market risk, dividends.
• Four types: Position traders • Follows fundamental analysis
(months to year); Swing trader • Retail/individual investors and
(days to weeks); Day trader
institutional investors- DII and
(throughout a day); scalp trader
FIIs
( seconds to minutes).
STOCK MARKET INDICES
• Performance of individual investor, market rates of
return, predict market movements
• Factors- base year-normal, sample-representative of
population
• Weighing criteria- equally weightes,price weighted, mkt
value weighted,free float market value weighted series
• International Securities Identification Number (ISIN) is a
code that uniquely identifies a specific securities issue
• https://www.bseindia.com/stock-share-price/state-bank-o
f-india/sbin/500112
/
Listing of securities
• Companies Act, 2013
• SCRA-1956
• Security groupings
• BSE-A,B,T &Z
• NSE-I,II&III
• Large cap stocks –more than1000 crores
• Mid-cap -200cr-1000 cr
• Smallcap-20 cr-200 cr
• https://
www.sharekhan.com/market/market-indices/indices/india
n-indices
Trading system
• Time conditions
– Day order
– Good Till Cancelled
– Good Till Days/Date-
– Immediate or Cancel-IOC
– Price Conditions
Limit Price/ORDER
Market price/order
Stop loss Price order
Quantity conditions-Disclosed quantity
Margin Trading
• Initial margin =
• Amount of money investor puts up/Total
value of transaction
• Actual margin =
current value of securities- Amount
borrowed/ current value of securities
Margin call Price =
Amount borrowed/No of shares(1-MM%)
• CMP- Rs100
• Investor wants to buy 100 shares
• Initial margin-50%
• Maintenance margin-30%
• TV=Rs 100*100 =Rs 10,000
• IM= Rs 5000,borrowedmoney =Rs 5000
• A) CMP-Rs 90
• AM = 9000-5000/9000 *100= 44.44%
• B) CMP-Rs 70
• AM =7000-5000/7000*100= 28.57%
• MCP= Rs 5000/ 100(1-0.30)= 71.43Rs
Margin Trading
Assume the initial margin requirement of 50
percent and a maintenance margin of 30
percent. An investor buys 100 shares of stock on
margin at Rs. 60 per share. The price of the stock
subsequently drops to Rs. 50. Is there a margin
call? On the basis of your result justify your
answer. If your answer is no, then at what
maximum price the investor will get the margin
call
SEBI (ISSUE OF CAPITAL AND DISCLOSURE
REQUIREMENTS) REGULATIONS, 2009,2013
Introduction
• Several guidelines have been introduced by SEBI for the
issuance of capital in the market from time to time.
• Earlier, SEBI issued „Disclosure and Investment Protection‟
guidelines, 2000 (DIP, 2000) which was replaced with „Issue
of Capital and Disclosure Requirements‟ 2009 (ICDR, 2009)
and the latest one is the SEBI (ICDR) Second Amendment
Regulations, 2013.
• These guidelines provide the overall framework within
which a company can bring its new issue in the market.
However, the main aim of SEBI (ICDR) regulations is to
provide more secured IPO market to the investors.
Angel, VC, and PE Investing-Case Study
• A mineral water producing company has proposed an
investment of Rs. 50 crores to set up a water bottling plant
including sourcing, packaging and distribution.
• There are four people involved here who can be termed as
promoters. They contribute 5 crore each.
• The remaining money should be raised. They approach a
bank/FI, they receive a loan of Rs. 10 crore.
• How to raise remaining Rs. 20 crore? IPO ? (all other source of
debt funds are exhausted.)
• IPO- stringent procedure, lengthy processes, High fees, can
not get through SEBI norms as start up company.
Angel Investors
• Angel Investors could be an individual or a
group of individuals with similar objectives
who invest small amounts (in lakhs) and start
mentoring/incubating process over a period of
time (may be 2 to 3 years) ready the business
for the next big round of funding.
• E.g. Your parents, Your uncle, Your Education
Institute
Venture Capital Companies
• VC companies are professional institutions that support the
innovative projects and promising business ideas through raising
funds from risk taking investors. They are the lifeline for
entrepreneurs and start-up companies that struggle for funds.
• E.g. Google, Facebook, Ola cabs, Zoomin cabs, Android App, Café
Caffee Day are examples of innovative businesses.
• E.g. ICICI Venture fund, UTI Venture funds management, Can bank
Venture fund.
• E.g. SKS Micro finance, Just Dial, Bigbasket.com, Redbus.in,
Flipkart.com funded by VC.
• VC companies invest in risky businesses or projects which may be
innovative where traditional banks or FI would have rejected.
Differentiate between Angel and VC investing
Angel Investing VC Investing

• Typical wealthy individuals • VCs invest other investors’
• Invest their personal money money
• Raise funds from risky investors
• Small amount (in lakhs)
• Invest high amount (in crores)
• Will not be on the board of
• Involve in business by
company becoming board members
• Takes mentoring role • Guide through taking decision
• working hard in initial • Drives business for revenue &
stages profit exits
Private equity investors
(PE investors)
• PE investors invest into a business at the later
stages/matured stage of a business.
• They invest in existing companies with existing
products and proven cash-flows.
• They try to restructure the existing business by
trying to optimize the performance.
• They even would be largely instrumental in
transforming companies on the brink of
bankruptcy into profitable enterprises.
Exit route for VC/PE companies
• Companies eventual IPO (offer for sale) or
• offering their stake to the promoters through buy-back
arrangement
• Strategic stake sale to another investors e.g. Private
Equity Investors.
• Note: Today, VC invests not just in start-ups but they also

invest in already existing companies those may or may
not be listed on stock exchanges.
Who said investment in start ups is
unprofitable?
• TVS Capital Funds Ltd. sold its investment in Wonderla

Holidays Ltd. The investment was made at Rs. 125 per
share before its IPO during May 2014. The company exited
at the price of Rs. 384 during June 2016. (over 200% profit).
• Naspers paid Redbus Rs. 100 million (around Rs. 600 crore)
on exit.
• Mr. Narayan Murthy and Mr. Azim Premji’s investment in
Manipal Global Education Services (MGES) also received
handsome returns on their exit.

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IFS

• Note: Today, VC invests not just in start-ups but they also

Internal Working capital Miscellaneous

• With the prime objective of (SEBI Act , 1992)

11.Substantial acquisition of shares and takeovers

 Major Stock Indices:

• Governance and Value Creation:

Internal accruals of a firm consist of depreciation amortisation,

• Opportunity cost is high

• Majority Rule Voting

There are different ways in which a company may raise

 Access to a larger pool of capital  Dilution

From the perspective of merchant banking the IPO process consists of

• Amount that can Large Moderate Moderate Moderate

• Dilution of Yes No Yes Depends

• Set up in 1992. first stock exchange in India to introduce scree-based

• An IPO is when a company which is presently not listed at any stock

iv) In addition to satisfying the aforesaid entry norms, the

• Fixed Price Issues

• The process is named so because it refers to collection of bids

YEAR BOOKBUILDING FIXED PRICE TOTAL

2003-04 9 2641.04 82.8 10 550.07 17.2 19 3191.10

1. Demat Account- issued and tradable only in demat

• In an endeavor to make the existing public issue process more efficient,

Angel Investing VC Investing

• Note: Today, VC invests not just in start-ups but they also

• TVS Capital Funds Ltd. sold its investment in Wonderla

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