PRIVATE EQUITY & VENTURE CAPITAL

VENTURE CAPITAL
Provided as a capital infusion into a business with high potential of return associated with high risk. Classic examples- Apple, Compaq, Biocon, Good Knight, Infotech, Yahoo, Dr.Reddy, Orchid pharma, Geometric Solutions, E commerce portals Characteristics- High content of Technology, Innovation in concept, Scalability, high mortality rates, New market segment (potable water to villages), Novel Pacakaging (30 years back shampoos in pouches, BOPP), Food packaging in foils, Containerisation as logistics application (two decades back in India), Non grid based power distribution (presently on)

VC Defined
Text book definition: Capital for investment which may easily be lost in risky projects but may provide high returns (dictionary of Banking and Finance An investment in a start up business that is perceived to have excellent growth prospects but does not have access to capital market. Type of financing sought by early firms to grow rapidly. Bloomberg

Certain VC investments
News Print from Bagasse by Tamil Nadu News prints Halogen bulbs for automobiles (Autoelec) GIS information software (Infotech) Electric vehicles (in late eighties nad early 90s)- Chatelec, a failed venture.. Shantha biotech- Serum vaccine Goli Vada paav (Surprises me too??)

Certain VC investors in India

ICICI Ventures VC division of IDBI TFCI TDB (GoI) Gujarat Venture capital AP venture capital SIDBI Venture

Funding of Ventures
Financed as structured obligations.
Pure equity with buy back after a particular stage Convertibles with milestone based conversions Soft loan with back ended coupons without any security. Series of funding based on levels of maturity achieved Swap with existing VC investors

Covenants of venture financing

VC financier comes in as a mentor. Board seat Veto right on choice of key personnel. Negative covenants Affirmative rights In out covenants (issue of new shares to new investors. Sale by the VC entrepreneur) Anti dilution clauses- Equity claw back, liquidity preferences. Tag along (minority shareholder) and drag along rights (majority stake by VC investor)

VALUATION OF VC INVESTMENTS
Pre money valuation Post money valuation % stake Eg Pre money 10 cr Post money 15 cr VC investment 5 cr The stake % is not indicated 5 cr investment forms 33% of the stake