VENTURE CAPITAL FUNDING

THE NEXT ENGINE OF ECONOMIC GROWTH

VENTURE CAPITAL

Financial capital provided to early-stage, high-potential, high risk, growth start up companies. The venture capital fund makes money by owning equity in the companies it invests in These companies usually have a novel technology or business model It is an association with successive stages of firms development with distinctive types of financing appropriate to each stage of development.

STAGES OF A VENTURE FINANCING

Seed Money

Start-up
Growth (Series A round) Second-Round: Expansion Exit of venture capitalist

VENTURE CAPITALISTS GENERALLY:

Purchase preferred equity securities and take board positions. Finance new and rapidly growing companies; Raise pools of capital from institutional and individual investors. Add value to the company through active participation; Take higher risks with the expectation of higher rewards Have a long-term orientation

Why Venture Capital funding: Business Consultations Management Consultations Human Resources Additional Resources Why Not Venture Capital funding: Internal problems Equity Position Decision Making Milestones and targets

CHALLENGES IN INDIAN SCENARIO

Not well understood by entrepreneurs, investors, and government agencies and needed nurturing. Businesses were traditionally closely held family operations and the concept of selling out a company to a strategic investor or rival was foreign. Cultural issues also complicated VC investments as Indian entrepreneurs were very individualistic, preventing them from being able to let go of their company, hindering an exit in the form of an acquisition or merger.

CISCO : A LAND MARK CASE

Cisco Systems, Inc. is the world's leading supplier of computer networking products, systems, and services. Founded by a husband and wife team from Stanford university in 1984

Main market segments

Large corporations Service providers : Internet and telecom service providers Small and medium businesses for their operating networks

TRACING THE JOURNEY

Cisco was established on a very tight budget. The couple had to mortgage their house, run up credit card debts, and defer salaries to their friends who worked for them. Head start: By the late 1980s, when the commercial market for internetworking began to develop, Cisco's reasonably priced, high-performance routers gained recognition. Although, high rate of sales growth, the young company was still short of cash. In 1988 the couple were forced to turn to a venture capitalist, Donald T. Valentine of Sequoia Capital Thus in Feb. 1990, the company went public after which the couple started selling the shares.

THE HIGH MOMENTUM OF GROWTH

Early 1990s: Rapid Growth As Networks Proliferate

The company grew at a tremendous rate as its market rapidly expanded as it Cisco adapted and added the capabilities of handling new protocols to its products.

1993-94: First Wave of Acquisitions

it acquired Crescendo Communications. Cisco hired talent from smaller, struggling networking companies which were laying off personnel. By the late 1990s Cisco Systems was the undisputed king of the networking world.

Thus, by early 2000s, Cisco's market value surpassed $ 450 billion, making it the third most valuable companies in the world behind Microsoft and General Electric Company

THE OTHER SIDE OF THE COIN

The VC however, required that the owners surrender to him a controlling stake in the company. Mr. Valentine, thus, became chairperson and then hired an outsider, John Morgridge, as the company's new president and chief executive officer. The new CEO also replaced the friends of the couple who were the back-bone of cisco. Under the new CEO, the husband was given the title of chief scientist and the wife was made head of customer services. However, later the wife did not get along well with the new CEO and so, she was fired from her own company and the husband also quit.