Professional Documents
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VC FUNDING IS
it is the business of employing Capital patiently to maximise returns while managing risks in a relatively high-risk venture.
versus
Contd.
Venture capitalists are typically very selective in deciding what to invest in; As a rule of thumb, a fund may invest in one of four hundred opportunities presented to it. Funds are most interested in ventures with exceptionally high growth potential.
VC fund is often thought of as,the early stage financing of new and young enterprises seeking to grow rapidly.
Development of VC in India
The concept was introduced in India in 1987 It was operated by Industrial Development Bank of India. In the same year Industrial Credit and Investment Corporation of India also started VC activity. Govt started leivying 5% cess on all payment related to VC
Writing a business plan is a process in which the entrepreneur is forced to think about all aspects of the business Write it yourself Focus on The people, the opportunity / business model, Risk and Reward Write down the exit options (the investor wants to get money out of it as well).
Types of VC Firms
Depending on your type business, the venture capital firm you approach will differ. For instance, if you're an internet [start-up company], funding requests from a more manufacturing-focused firm will not be effective. Doing some initial research on which firms to approach will save time and effort. When approaching a VC firm, consider their portfolio:
Business Cycle: Do they invest in budding or established businesses? Industry: What is their industry focus? Investment: Is their typical investment
Targeting specific types of firms will yield the best results when seeking VC financing. The National Venture Capital Association segments dozens of VC firms into ways that might assist you in your search. It is important to note that many VC firms have diverse portfolios with a range of
Step 4 : Management team meets the all the partners at the VC firm. (This can happen earlier or later.) Step 5 : Terms are negotiated - valuation and other financial terms, governance and other control issues, etc. Term Sheet is signed. Step 6 : Legal, financial and technical due diligence performed. Step 7 : If all works out, legal documents, including Shareholder Agreements, are drafted. Step 8 : Legal documents are signed, and funds transferred from VC fund to company. Timing: The entire process may take as short as 3 months. But often the initial contact happens well before any deal is concluded, as the VC might be waiting to see how things develop at the company.
Trends In VC Funding
There are typically six stages of financing offered in Venture Capital, that roughly correspond to these stages of a company's development. Seed Money: Low level financing needed to prove a new idea (Often provided by "angel investors") Start-up: Early stage firms that need funding for expenses associated with marketing & product development First-Round: Early sales and manufacturing funds Capital for a venture that has successfully passed the initial start-up phase. The business plan has been written and the product is
Second-Round: Working capital for early stage companies that are selling product, but not yet turning a profit Usually provided by venture capital firms and (investment) banks Often used for marketing purposes and growth of the Third-Round: Also called Mezzanine financing, this is expansion money for a newly profitable company Sometimes another round of financing is necessary before being profitable. In other cases the money is used by profitable companies to be able to Fourth-Round: Also called bridge financing, 4th round is intended to finance the "going public" process
The Opportunity
High Growth in Technology and Knowledge based Industries. KBI growing fast and mostly global, less affected by domestic issues. Several emerging centers of innovation biotech, wireless, IT, semiconductor, pharmaceutical. Ability to build market leading companies in India that serve both global and domestic markets. India moving beyond supplier of low-cost services to higher-value products. Quality of entrepreneurship on ascending curve.
Venture capital
Long term equity finance Investing as opposed to banks who lend Looking for high gains Accepting high risks Can be involved in management of the invested firm Venture capital investment is illiquid
Structure of VCs
Mostly funds
Charge about 2% + success fee
VC : Advantages
No fixed expense of debt servicing Financial flexibility Sharing of risk Value added investing
Attracting talent Networking with service providers/suppliers Accessing markets
VC : Disadvantages
Dilution of shareholding Increased 3rd party governance Increased controls Increased commitment to stated strategy
Types of VC
Early stage financing Seed capital or pre-start up or R&D Start up financing Second round financing Later stage financing Expansion Replacement Turnaround
Valuation exercise
1. Get rid of scamsters 2. Hygiene factors beware of things that can shut down a business 3. Growth & industry considerations 4. Due diligence
1. Physical evaluation 2. Calling in the experts
5. Monetise value
Agreement particulars
Amount and terms of investment. Dividend policy. Composition of the board of directors. Reporting - management reports, monthly accounts, annual budgets. Liquidity (exit) plans. Rights of sale Warranties. Matters requiring venture capitalist approval
Problems
Locating players Concerns regarding exchange of info Larger companies look equally attractive with lesser risk Even listed securities are giving great returns
Credit scoring
Managing banks
Complete paperwork in time Submit financial statements as scheduled Route all transactions through bank Ask for extras free drafts, alerts, etc Exude confidence and well being Transmit good news Be proactive about inspections
Cash is king
Can result form unplanned success Is usually due to lack of planning or tardiness in collections Dissatisfaction among suppliers
Higher costs Lower quality
Collection strategies
Investigate new customers Supply against written orders Sign on a legal contract Maintain close contact with customers Get and repeat positive feedback Send invoice ASAP Contact before sending invoice ( to check particulars)
Collection strategies
Keep a close watch on customers fortunes Immediately contact on any delayed payment Be firm its your own money Allow a customer to graduate in his credit ratings with you
Break-even analysis
Identify fixed and variable costs Explore possibilities of changing fixed into variable costs And vice-versa Can be expressed in terms of
Capacity utilisation Sales revenue
Application of BEA
Helps in taking investment decisions Profit optimisation planning Helps in pricing decision Can be modified to calculate profitability at various levels of capacity utilisation / sales
Avnish Bajaj, Matrix Partners Balaji Srinivas, Aureos Capital Alok Mittal, Canaan Partners
2i Capital (India) Private Limited - is an asset management group that has insight into investment opportunities that arise from India's vibrant and broad industrial and service sectors, and large, growing domestic market on the one hand, while leveraging the country's recognised expertise in technology, engineering, and technology services into global markets, on the other. Actis - have been investing in emerging markets for over 55 years through our origins as part of CDC Capital Partners. We are most active in Africa, China, Malaysia and South Asia, and we invest in SMEs and Power through our Aureos and Globeleq arms. Artiman Ventures- is an early stage venture capital firm devoted to investing in world-class entrepreneurs with leading edge technologies. Avon Capital Services Ltd - Mumbai based Financial Services and Management Consultancy Company.
Baring Private Equity Partners (India) Limited commenced investment management activities in 1998 as part of the Baring Private Equity Partners Group. We provide investment advisory services to Baring Funds, which have cumulative assets under management in excess of $275 Million, in the manufacturing, pharmaceutical, information technology and services sectors. Berkeley Finance & Consulting - BFC offers fund-raising, consulting and strategic alliance formation services helping organizations planning to transform/expand operations by adding new products BlueRun Ventures - Being global lets BlueRun Ventures seek out best-of-breed technologies and entrepreneurs in the markets where innovation is accelerating. BRV has been working with Nokia Venture Partners on few investments.
CANBANK VENTURE CAPITAL FUND LIMITED - is Canara Bank sponsored Venture fund. Incorporated in 1989, Canbank Venture is an experienced fund management company currently managing Four funds. ChrysCapital - manages $1 billion across four funds and aspires to build the leading investment firm focused on India. Our disciplined investment approach translates the growth in the Indian economy into superior returns for our investors. Global Technology Ventures Ltd - GTV, based in Bangalore, India, is a technology holding company, tracing its lineage to the Sivan Securities Group. GTV partners with exceptional entrepreneurs, who have a gut for the original, and are passionately dedicated to building category-leading tech companies. Investing in technology ventures across all stages, GTV provides access to capital and resources to companies with global market leadership potential.
IVCA
Indian Venture Capital and Private Equity Association (IVCA) is a member based national organization, which promotes the industry within India and throughout the world and encourages investment in high growth companies. Members represent most of the active venture capital and private equity firms in India. These firms provide capital for seed ventures, early stage companies, later stage expansion, and growth finance for management buyouts/buy-ins of established companies. IVCA members comprise venture capital firms, institutional investors, banks, incubators, angel groups, corporate advisors, accountants, lawyers, government bodies, academic institutions and other service providers to the venture capital and private equity industry.