V Personal savings

V Bootstrapping

V Bank loan
  





 

 
 
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m e company starts up and needs money
to grow. m e company seeks venture
capital firms to invest in t e company.

Creation of a 
 t at s ows w at

t ey plan to do.

m e  look at t e plan, and if t ey like t ey

invest money in t e company. m e first round
of money is called a 


 .

Company will receive 3 or 4 rounds of

funding before going public .

t e company gives t e VCs stock in t e

company as well as some control over t e
decisions t e co.
 ow muc stock s ould t e VC firm get in
return for t e money it invests? m is question
is answered by c oosing a 
for t e
company.

'



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VC firm mig t typically receive anyw ere

from 10% to 50% of t e company in return for
its investment.

m e s are olders own 100% of t e company

prior to t e VC's investment. If t e VC firm gets
50% of t e company, t en t e original
s are olders own t e remaining 50%.
V ðong mime orizon

V ðack of ðiquidity

V ig Risk

V Equity participation

V Participation in management
 Risk Avoider Risk T kers

Speci lizes in
Speci lizes only in
m n gement
fin nci l services
services

P rtner of t e
entrepreneur

Extensive
Suc experience oper ting
is not required experience
 !)m*+!',m-,.m /)0!+123)!42)5!+

venture capitalist is basically an

Banker is a manager of ot er people's
investor.
money

Venture capitalist generally invests in

new ventures started by tec nocrats
w o generally are in need of
entrepreneurial aid and funds.

Venture capitalists generally invest in

companies t at are not listed on any
stock exc anges. m ey make profits
only after t e company obtains listing.

e is a specialist and lends

management support
 

6  
7
 6  

±bjective Maximize return Interest payment

olding period 2-5 years S ort/long term
Instruments Common s ares, ðoan, factoring, leasing
convertible bonds,
options, warrants

Pricing Price earnings ratio, net Interest spread

tangible assets
Collateral Very rare Yes
±wners ip Yes No
Control Minority s are olders, Covenants
rig ts protection, board
members

Impact on B/S of Reduced leverage Increased leverage

financed
Exit Mec anism Public offering, sale to ðoan repayment
t ird party, sale to
entrepreneur
V ]evelopment ±f An Idea (Seed Finance)

V Implementation Stage (Start Up Finance)

V Fledging Stage (Additional Finance)

V Establis ment Stage (Establis ment

Finance)
V Setting up a deal
V Screening t e ventures
V Business plan evaluation and investment
valuation
V ]eal structuring
V Post-investment activities
V Exit
m e general partners (GPs) at a typical
venture firm get paid two ways:

management fees carried interest