VENTURE CAPITAL FINANCE

Evolution and History

Started in 15th century by financing the voyage of Columbus by king of portugal Modern VC take shape after 2nd world war Pioneer of VC: General George Doroit Promotion of Small Business Investment companies by US Govt. Equity or semi equity firm to finance hitech projects having profit potentials

Venture capital financing in India

Started by Technology Development Fund in 87-88 Subsequent by TDICI (now ICICI) and Gujarat Venture Capital finance Ltd. (GVCFL) 1996- SEBI guidelines for foreign VCs Today total pool by VCs more than 50bl Many of the VCs are not true VCs as they do not provide start up fund Funds may by industry specific, focusing in geographic area

Classification of Venture Capital firms

Classification based on activities
Incubators: a technocrat work with entrepreneur to develop business idea Angel investors: are experienced industry individual with high net worth Venture Capitalist: organizations raising funds from investor Private Equity Players

Venture capital financing process

Making a deal Screening Due diligence Investment valuation Deal structuring Post investment activities and Exit

Ways to exit for VCs

Initial Public Offerings Acquisition by another company Repurchase of VCs share by investee company Purchase of VCs share by third party

Incubation process
Pre- admission development and admission to the incubator Company development
Technology, market, finance

Company growth
Technology, market, infrastructure and people, finance

Graduation

Business plan
Executive summery Business background Product/services Market analysis Sales and marketing strategy Production/operation Management Risk factors Funds requested

Cont
Returns on investment and exit Use of proceeds Financial summaries Appendices

Selection of venture capital fund

Early stage financing Expansion financing Acquisition/buyout financing

Merits of VCs
Provide large sum of equity finance Part of economic growth Promote innovative ideas Encourage entrepreneurship Benefit to growing economy

Demerits of VCs
Making deal with VCs is long and complex process Preparing business plan Lose of control Payment of legal and accounting fees Sharing of benefits and profit

SEBI guidelines for foreign VCFs

Registration Eligibility criteria
Track record Approval of RBI for investment in India Type and nature of company i.e. investment company, trust, partnership, pension fund, MF, etc Authorization of investing in VC firms Submit the track record of banker or promoter of applicant Should be a fit and proper person

Cont
Conditions of certificate