Study on Venture Capital

PRESENDTED BY :
MUHAMMAD QASIM
What is Venture?
A venture is a project or activity which is
new, exciting, and difficult because
it involves the risk of failure.

What is Capital?
Factors of production that are used to create
goods or services
 What is Venture Capital?
Venture capital is financing that investors provide
to startup companies and small businesses that are believed to
have long-term growth potential. For startups without access
to capital markets, venture capital is an essential source of
money. Risk is typically high for investors, but the downside for
the startup is that these venture capitalists usually get a say in
company decisions.
Venture capital investment is also referred to risk capital or
patient risk capital, as it includes the risk of losing the money if
the venture doesn't succeed
Example of Venture Capital?
• Mark zuckerberg founder of Facebook and Jim Breyer , a starting Facebook
( FB ) investor.
• Jack Dorsey founder of twitter and Peter Fenton an investor in Twitter (
TWTR ).
 Venture Capitalist
• A venture capitalist is an investor who either offers to fund to
startup venture or help little organization that needs to extend
yet don't approach regards markets. The venture capitalist
will put resources into such organization since they can get a
huge advantage for their undertakings if these organizations
are a win.

Work process of Venture Capitalists

When venture capitalists invest in a business they:
• Become part-owners and as a general rule require a seat on the company’s board
of directors.
• They generally buy a minority share in the company and commonly do not take day-
to-day control.
• Professional venture capitalists act as mentors and make sure to provide help
support and suggestions on a wide range of management and technical issues.
History
• Venture capital industry was the section of private company investments
venture Act of 1958.
• In light of the achievement of Fairchild Semiconductor, different Venture
capital firms and advancement new organizations begin to set up shop in
Silicon Valley, wanting to duplicate the accomplishment.
• During the 1970s, venture capital firm engaged their investments
movement basically around starting and consuming associations.
• The National Venture Capital Association (NVCA) reports that "investment
is an impulse for work creation, advancement, development progress,
overall forcefulness, and extended evaluation wages.“
• In its initial a very long time through to by and large the year 2000, the
private value and venture capital resource classes were basically unique
in the United States.
• At the present time, venture capital condition is at record-breaking high
prompting a crisis of through and through new business. Endeavors
capital ventures are helping them for understanding the greatest capability
of business people.
• "Some of America's most exceptional associations were set up with the
assistance of funding, including Facebook, Apple, Amazon, Whole Foods
Market, Google, FedEx, Starbucks, and Intel.
Types of Venture Capital funding
Seed capital
• People who are found starters that do not have any well-
organized company
• During this period generally a small amount of venture capital is
offered.
• Generate a sample product
• Cover the administrative initial costs
• Fund for market research
Start-up Capital
• This stage is similar to the seed stage.
• Only when a sample product made by the company
• advance market research
• companies look to begin marketing and advertising the product
and acquiring customers.
• product for getting access to the market
 Types of Venture Capital funding
Early Stage Capital
• A company with two to three years of experience is considered eligible for this
type of venture capital
• The capital provided at this stage helps the set-up
• Small firm improve their production
• Increase the efficiency.
• Funding received at this stage will often go toward manufacturing and
production facilities, sales and more marketing.
Expansion stage
• Growth is often exponential by this stage
• expansion to additional markets (e.g., other cities or countries)
• differentiation of product lines.
Late Stage Capital:
• Improvement the efficiency
• Product marketing strategies
• Increase the working capital.
Venture Capital Cycle
 Features of Venture Capital investments
• High Risk
• Lack of Liquidity
• Long term horizon
• Equity support and capital additions
• Innovative projects
• Participation in the management
Methods of Venture capital financing
• Equity
• participating debentures
• conditional loan
 Venture Capital Process

Deal Origination
Screening
Evaluation
Deal Negotiation
Post Investment
Activity
Exit Plan.
How does a Venture Capital firm work?
There are two key segments inside VC fund: general and limited partners. The
general partners are the general population responsible for settling on
venture decisions and working with new organizations to create and meet
their goals. On the other hand, there are limited partners, the people, and
association who give the capital imperative to complete those investments.
How do Venture Capital firms make money?
The way Venture Capital funds are two overlaps:
• Management fee
• Carries (carried interest).
Management fee
• Management fees are usually defined as the ‘cost of having your assets
professionally managed
• VC funds typically pay an annual management fee to the fund’s
management company
• As a form of salary and a way to cover organizational and fund expenses
• Management fees are usually calculated on a percentage of the capital
commitments of the fund, or about 2 to 2.5 per cent.
Carries (carried interest)
• Share of the profits of an investment that is paid to the investment
manager in excess of the amount that the manager contributes to the
partnership
• Carried interesting in Venture Capital is usually 20 to 25 per cent, meaning
that while 20% of the profits go to the general partners, 80% belongs to
the limited partners.
Advantages and Disadvantages of Venture Capital
Advantages of VC
• VC funding is not a loan scheme, there is no repay
schedule
• VCs have consultants and professionals on their staff
that has deep knowledge of specific markets
• They bring wealth and expertise to the company
• Large sum of equity finance can be provided
• In addition to capital, it provides valuable information,
resources, technical assistance to make a business
successful
• Economic growth
• Venture capitalists are typically well connected in the
business community. Tapping into these connections
could have tremendous benefits.
Advantages and Disadvantages of Venture Capital

Disadvantages of VC
• As the investors become part owners, the autonomy
and control of the founder is lost
• It is a lengthy and complex process
• It is an uncertain form of financing
• Benefit from such financing can be realized in long run
only
• Depending on the size of the VC firm’s stake in your
company, which could be more than 50%, you could
lose management control. Essentially, you could be
giving up ownership of your own business.
• Would you rather own your own business or partner in
a larger, potentially more successful one?
 Venture Capital Investing in Pakistan
• Venture capital companies and venture capital funds are of recent
origin in Pakistan, as their history dates back only to the early
1990s.
• The lawful structure for the foundation of venture capital
organizations was set up out of the blue by July 2000
• venture capital to the general slower financial development amid
the 1990s and the absence of qualified professional venture
capitalist educated about the operation of venture capital in rising
economies.
• The business culture of Pakistan isn't energetic about the more
dangerous endeavors of a business person
• The lack of qualified professional venture capitalists
knowledgeable about the operation of venture capital in emerging
economies.
• A financing gap occurs when capital sources such as self-raised or
retained earnings are exhausted. Venture capital companies could
be one of the ways to bridge this financing gap in a commercial
capacity.
 Venture Capital Investing in Pakistan
• The Pakistan Economic Survey (2005)
• The Pakistan Economic Survey (2005) notes that "Venture Capital
Companies and other Financial Institutions (FIs) fulfill only 18 to
21% of fund requirements of the domestic software houses..
• The venture capital companies to concentrate on this sector,
specially in aiding the local companies in product development
• In Pakistan, the stringent collateral requirements of banks and
other FIs limit new start-ups' as well as existing SMEs' access to
financing.
• SMEs mostly rely on self-financing or retained earnings (Pakistani
Economic Survey, 2005).
• The government of Pakistan, as part of its programs to promote the
venture capital industry, granted a tax exemption for venture capital
investment for a period of seven years from 1 July 2000 to 30 June
2007.
• The total assets of venture capital companies witnessed the
highest one-time Pakistani venture capitalists investment criteria
annual growth of 218% from Pakistan Rupees (PRs)1005 million in
Fiscal year 2004 to PRs 3,200 million in /.
Venture Capital Investing in Pakistan
Profile of respondent venture capital companies (VCCs)
 Venture Capital Investing in Pakistan

The pool of venture capital companies assets in Pakistan

 Investment Criteria of Pakistan Venture Capitalist

The criteria are classified into seven major categories:

• The entrepreneur's personality

• The entrepreneur's experience
• Product/service characteristics
• Market characteristics
• Financial characteristics
• Environment conditions
• Venture team composition
 Developments in Venture Capital in Pakistan
• The VC investments in Pakistan are just beginning to show signs of life
Pakistani companies receiving funding in late 2006 and middle of 2007.
• Naseeb.com, the main other Pakistani organization to get US VC
subsidizing from Draper Fisher Jurvetson and ePlanet Ventures.
• PixSense at present has a sizable nearness in Pakistan and values what
Pakistani specialists have improved the situation it to make it effective on
a low spending plan
• A public-private organization is working with US specialists to create
funding and private value segments in Pakistan.
• Government of Pakistan which is working closely with the Pakistan
Business Council (PBC). To support the innovation economy and spur
entrepreneurial economic growth in Pakistan
• The US Government is providing aid to Pakistan over five years to
improve economic growth, education, health and governance.
• The efforts of the Pakistani government are laudable, the real impetus will
come from the successful outcome of VC investments in the companies
such as PixSense and Naseeb.
• Naseeb.com was definitely the example that led DFJ and EPlanet to back
Rahman’s next venture, the Lahore-based online job portal, rozee.pk, in
2007.
• Several investment firms in Pakistan, such as the Abraaj Capital Group-
backed BMA Capital, that could administer the fund.
Startup Incubators & Venture Capital Firms in Pakistan
• Start-up Incubators and Venture Capital Firms play a vital role in an entrepreneurial ecosystem. They not
only offer guidance to entrepreneurs and help them build profitable start-ups, they also serve as a means
for sorting out “extra-ordinary” teams from “mediocre” ones. They also provide “seed funding” to
business models that they see viable and have strong teams to carry the project on their own.
 Issues & Challenges for Venture Capital Industry in Pakistan
• SWOT Analysis

• Strength
• Better economic growth in last 6 years
• Growth and consolidation of banking sector
• Better spending on higher education
• Weaknesses:
• Lack of entrepreneurship
• Shortage of skilled human resource
• Lack of innovation and R&D among enterprises
• Limited knowledge based sectors
• Risky investment and few exit opportunities
• Opportunities:
• Increase in foreign direct investment
• Young entrepreneurs willing to share the success
• Growth potential in many sectors of economy
• Threats:
• Law and order situation
• Political Instability
Pakistan has a weak and volatile venture capital market
 Challenges and Opportunities for Venture Capital in Pakistan
• The venture capital firms are focusing and can focus more for attractive opportunities
are telecom, IT, IT related products and services.
• Research, bio technology, textile, retailing, renewable energy (solar and wind)
• With GDP growth of more than 6 percent in last five years, Pakistan has been able to
attract domestic as well as foreign investment.
• Banking sector has grown more than 30-40 percent in last 5 years and this has also
attracted foreign banks to acquire local banks or start their operations in Pakistan.
• U.S $ 12 billion foreign direct investment in Pakistan in last five years in oil and gas,
banking and telecom sector.
• Government of Pakistan has been successful in improving physical infrastructure,
many projects are already completed and others projects are in final stage of
completion.
• .Mutual funds, asset management companies and private equity companies have also
witnessed growth in last few years.
• This is the ideal time for venture capital industry to grow when we have many
positives like business friendly government policies, government funding for sector
development programs, high growth in financial sector, better standing of IT sector in
local market, creation of business and technology incubators and overall economic
development
 Dotzero
• Dotzero primarily invest in early-stage companies that their service, product or idea has mass
appeal.
• Once they decide to invest, we are laser-focused on helping seed stage companies become the next
big thing.
• Dotzero building a future where founders can work together to get the holistic advice, data.
History of Dotzero
• When Farzal Dojki was studying entrepreneurial ecosystems in the United States, he became
fascinated with the concept of coworking.
• Farzal Dojki Back at home in Karachi, Pakistan’s biggest metropolis, he considered starting the
city’s first coworking space.
• Aside from the security concerns, the prospect of failure weighed heavily on Dojki’s mind.
• Although Suite401 had the honor of being Pakistan’s first coworking space, it unfortunately closed
its doors in 2010.
• After working at different startups, Dojki started his own company, Next Generation Innovations,
He also noticed that other Pakistani companies faced the same problem.
• In July 2013, Dot Zero's opened its doors as Pakistan’s first community space for entrepreneurs.
• One of Dot Zero's goals is to help startups grow so they can in turn become drivers of socio-
economic growth.
• According to the Pakistan Startup Report of 2014, the number of startups has increased
exponentially in the past year. Two other incubator spaces have opened in Karachi
• Dotzero is playing an important part in improving the trust Karachi its have in such ventures and
the people involved
 Dotzero

Partners of Dotzero Boards of Dotzero

 Startup Grind
 Invest2Innovate
 Pakistan Innovation Fund
 P@SHA
 OPEN Karachi
 MIT Enterprise Forum
Pakistan
 NewG
 Eisenhower Fellowships
 Plan9
Dotzero source of Funding
 Conclusion
• Venture capital can play a more Innovation and improvement part in a
creating nation like Pakistan.
• Who wish to begin their own venture with or without high teach content,
however including high risk. This would empower the entrepreneurial soul.
• It isn't just at first funding which is required from the venture capitalist,
however they ought to likewise at the same time give the administration
and marketing expertise real basic part of the venture capitalist,
• Venture capital companies should also make efforts to understand the
cultural attitude of Pakistani entrepreneurs and SMEs; and also the
business dynamics of the country, which govern these companies
• According to SMEDA survey, only 25% SMEs have ever approached
banks for lending
• There is certainly room for venture capital because access to formal credit
is linked with collateral, documentation and business history. venture
capital is totally new phenomenon for them.
• So, new wave of young, educated entrepreneurs with different attitude will
accept venture capital
• Converting dreams into reality will also require political stability; better law
and order situation along with direct and indirect support from government;
and active involvement of private sector to timely identify right kind of
opportunities.