A REPORT ON

VENTURE CAPITAL FINANCING

Submitted by

Ansuman Mahapatra
Ashik Abdullah
Ashwin. S. Panicker
Prateek Kumar Mishra
Raktim

November 2010
Debts of gratitude……

We thank almighty God for showering grace up on us, without

his blessings we would not have achieved our goal. Whenever we started
feeling low, He would fill us with new hope and determination.

It is our privilege to place on record our sincere gratitude to,

Dr. Kavita chavali for the guidance and care extended to us.

It is great pleasure to express our sincere gratitude to, the staffs

of ‘‘High Street Venture Capital Trust” for their valuable help.

We thank all our friends at Alliance Business School, for

extending their help and moral support in every possible way.

Ansuman Mahapatra
Ashik Abdullah
Ashwin. S. Panicker
Prateek Kumar Mishra
Raktim
 INTRODUCTION

To start a new startup company or to bring a new product to the market, the
venture may need to attract financial funding. There are several categories of
financing possibilities. If it is a small venture, then perhaps the venture can rely
on family funding, loans from friends, personal bank loans or crowd funding.

For more ambitious projects, some companies need more than what
mentioned above, some ventures have access to rare funding resources called
Angel investors. These are private investors who are using their own capital to
finance a ventures’ need.

In addition to angel investing and other seed funding options, venture capital is
attractive for new companies with limited operating history that are too small
to raise capital in the public markets and have not reached the point where
they are able to secure a bank loan or complete a debt offering. In exchange
for the high risk that venture capitalists assume by investing in smaller and less
mature companies, venture capitalists usually get significant control over
company decisions, in addition to a significant portion of the company's
ownership.

Venture capital (VC) is financial capital provided to early-stage, high-potential,

and growth Startup companies. The venture capital fund makes money by
owning equity in the companies it invests in, which usually have a novel
technology or business model in high technology industries, such as
biotechnology, IT, Software etc.
 HISTORY

One of the first steps toward a professionally-managed venture capital industry

was the passage of the Small Business Investment Act of 1958. The 1958 Act
officially allowed the U.S. Small Business Administration (SBA) to license
private "Small Business Investment Companies" (SBICs) to help the financing
and management of the small entrepreneurial businesses in the United States.

During the 1960s and 1970s, venture capital firms focused their investment
activity primarily on starting and expanding companies. More often than not,
these companies were exploiting breakthroughs in electronic, medical, or data-
processing technology. As a result, venture capital came to be almost
synonymous with technology finance.

The public successes of the venture capital industry in the 1960s and early
1970s (e.g., Digital Equipment Corporation, Apple Inc., Genentech) gave rise to
a major proliferation of venture capital investment firms. From just a few dozen
firms at the start of the decade, there were over 650 firms by the end of the
1980s, each searching for the next major "home run".

Growth in the venture capital industry remained limited throughout the 1980s
and the first half of the 1990s increasing from $3 billion in 1983 to just over $4
billion more than a decade later in 1994.The late 1990s were a boom time for
venture capital.

The NASDAQ crash and technology slump that started in March 2000 shook
virtually the entire venture capital industry as valuations for startup technology
companies collapsed. Over the next two years, many venture firms had been
forced to write-off large proportions of their investments and many funds were
significantly "under water" (the values of the fund's investments were below the
amount of capital invested).
 High Street Venture Capital Trust

‘High Street Venture Capital Trust’ is a private Equity and Venture Capital
group that invests in early stage to expansion companies with a fast growth.

The firm is based in Bangalore, with its head office at Level 14, Concorde
Towers,UB City, Vijay Mallya Road, Bangalore- 560 001

‘High Street Venture Capital Trust’ have backed and invested in companies
that have tremendous growth potential. Their investments are spread out over
a wide basket of diversified segments, viz, Consumer Products, Real-estate &
Infrastructure, Information Technology & Semi Conductors, Industrial
Products, Media & Entertainment, HealthCare & Life Science and Alternative
Energy

For over 2 years, High Street Venture Capital Trust has shared a common
vision: be first. First to see the opportunity, first to define a category, and first
to transform the industry.

The High Street Venture Capital team brings a deep base of experience that
includes years of operating experience within leading technology companies
and new venture development.
 The venture capital financing process

The venture capital financing process can be distinguished into five stages:-

 The Seed stage

 The Start-up stage
 The Second stage
 The Third stage
 The Bridge/Pre-public stage

The Seed stage

It is considered as the setup stage where a person or a venture approaches an

investor in a VC-firm for funding for their idea/product. During this stage, the
person or venture has to convince the investor why the idea/product is
worthwhile. The investor will investigate into the technical and the economical
feasibility (Feasibility Study) of the idea

At this stage, the risk of losing the investment is tremendously high, because there are so
many uncertain factors

The Start-up Stage

If the idea/product/process is qualified for further investigation and/or

investment, the process will go to the second stage; this is also called the start-
up stage. At this point many exciting things happen. A business plan is
presented by the attendant of the venture to the VC-firm. A management team
is being formed to run the venture. If the company has a board of directors, a
person from the VC-firms will take seats at the board of directors. The VC-firm
monitors the feasibility of the product and the capability of the management.
If at this stage, the VC-firm is not satisfied about the progress or result from
market research, the VC-firm may stop their funding and the venture will have
to search for another investor(s).

The Second Stage

At this stage, we presume that the idea has been transformed into a product
and is being produced and sold. This is the first encounter with the rest of the
market, the competitors. The venture is trying to squeeze between the rest
and it tries to get some market share from the competitors. This is one of the
main goals at this stage. Another important point is the cost. The venture is
trying to minimize their losses in order to reach the break-even.

If at this stage the management-team is proven their capability of standing

hold against the competition, the VC-firm will probably give a go for the next
stage. However, if the management team lacks in managing the company or
does not succeed in competing with the competitors, the VC-firm may suggest
for restructuring of the management team and extend the stage by redoing
the stage again. In case the venture is doing tremendously bad whether it is
caused by the management team or from competition, the venture will cut the
funding.

The Third stage

This stage is seen as the expansion/maturity phase of the previous stage.The

VC-firm will evaluate if the management-team has made the expected
reduction cost. They also want to know how the venture competes against the
competitors. The new developed follow-up product will be evaluated to see if
there is any potential.

The Bridge/Pre-public stage

In general this stage is the last stage of the venture capital financing process.
The main goal of this stage is to achieve an exit vehicle for the investors and
for the venture to go public. At this stage the venture achieves a certain
amount of the market share.
 How do I make my company attractive to a Venture Capitalist?

Investors are interested in companies with high growth prospects, enjoy barriers to
entry from competitors, are managed by experienced and ambitious teams and have
an exit opportunity for investors which will provide returns commensurate with the
risk taken.

When approaching a Venture Capitalist, it is important to understand if their

investment criteria or preferences match your project. Earlier stage projects
normally reflect a higher level of risk for investors, so it's important that
entrepreneurs explore all possible sources of finance when fundraising.

The diagram below highlights the likely sources of funds for businesses at
different stages of development.
 Questions to ask before approaching a Venture Capitalist.

Does my company have high growth prospects and is my team ambitious to

grow the company rapidly?

Does my company have a product or service with a competitive edge or unique

selling point?

Can it be protected by Intellectual Property Rights?

Can I demonstrate relevant industry sector experience?

Does my team have the relevant skills to deliver the business plan fully?

Am I willing to sell some of the company's shares to a private investor?

If your answers are 'yes', external equity is worth considering.

If 'no', it may be that your proposal is not suitable for venture capitalists and it
may take additional work on your behalf to make the proposal 'investor ready'.

The Role of the Non-Executive Director

It is normal for Venture Capital investors to place a Non-Executive Director on

the Board of the investee company to represent their interests. This can either
be one of its own fund managers or an individual who has sectoral, market, or
management expertise which will help delivery of the corporate plan.

Most Venture Capitalists, however, recognise that the chemistry and

teamwork between the non-executive and the existing management team is
crucial. As a result, the VC's Non-Executive Director is there to play an integral
role in the development of the company rather than act as a watchdog for
their investment.

This availability of outside expertise to the management team represents a

valuable asset for most companies, particularly start-ups, and is one reason
why Venture Capital is regarded as a value-added source of finance for SMEs.
 Business Plan – Invitation for Venture Capitalist

Venture Capitalists read numerous business plans from a wide range of

sources and they must invest in the best projects. Their first impression of your
business plan will determine whether they take their interest any further.

It is absolutely essential that your business plan demonstrates an 'investor

ready' project.

What does a good business plan should include:

Executive Summary
This is the key part of the document which must immediately and clearly
articulate the investment opportunity for the reader.

The Executive Summary should make a potential investor believe that your
unique proposition has the potential to make a good return on their
investment and that you and your team have the ability to deliver what the
plan says

If this part of the Business Plan is not presented with conviction and in clear
language, you may miss the opportunity of ensuring that a potential investor
takes the time to read your entire plan.

The detailed plan should give full details under the following headings:
1. The Product / Service
2. The Market
3. Management Team
4. Business Process / Operations
5. Financial Projections
6. Proposed Investment Opportunity

References
 http://en.wikipedia.org/wiki/Venture_capital_financing
 High Street Venture Capital Trust