1. VENTURE CAPITAL
FINANCING

2. VENTURE CAPITAL – Some Views
General Georges Doriot – father of US Venture Capital
“Venture Capital is Patient and Brave Money that seeks
new and growing companies and invests for long haul”
Gombers & Lerner: Venture capital at crossroads
“Independently managed dedicated pools of capital that
focus on Equity or Equity linked investments in a privately
held, high growth companies”

3. VENTURE CAPITAL

Long-term Equity / QUASI Equity finance in
businesses with high growth and profit potential

Return through capital gains

Risk-reward sharing in nature

Not synonymous to high-tech finance

4. VENTURE CAPITAL IS NOT

Development Finance

Term Loan

Conventional Financing

Passive Equity investment support

R&D funding sources

5. CONVENTIONAL FINANCING
VENTURE CAPITAL

TERM LOANS

EQUITY / QUASI EQUITY

SECURITY BACKED

UNSECURED

PASSIVE

ACTIVE

FIXED OBLIGATIONS

PAYMENT RELATED TO
PERFORMANCE

RISK AVERSE

WILLING TO ASSUME RISKS

LONG TERM CONSIDERATION

PREFERENCE FOR SMALLER
START UPS


SHORT-TO-MEDIUM TERM
PERSPECTIVE
PREFERENCE FOR
LARGE AND STABLE
BUSINESSES

6. VENTURE CAPITAL IN INDIA

STARTED IN MID EIGHTIES BY THREE ALL INDIA
FINANCIAL INSTITUTIONS AND A PRIVATE COMPANY.

IN 2002 VENTURE CAPITAL FUNDS INVESTED $590.21
MILLION IN INDIAN COMPANIES.

INDUSTRY HUBS :MUMBAI, DELHI, BANGALORE.

IN 2002, INDIA RANKED AS THE SECOND MOST ACTIVE
VC MARKET IN ASIA PACIFIC (EXCLUDING JAPAN).

Major VC Companies in India: ICICI Venture, Gujarat
Venture Finance Limited, UTI ventures, SIDBI Ventures Etc.

7. Stages of Company Evolution &
Primary External Finance Source
Public Issue
Mezzanine /Private
Equity
Venture Capital Funds
Angel Investors
Incubators
Personal Savings
SEED
START-UP
EARLY
GROWTH
SUSTAINED GROWTH

8. STAGES OF INVESTMENT
SEED


TO GET A COMPANY STARTED.
THE PRODUCT MAY BE IN A R&D PHASE, IT MAY JUST BE
AN IDEA.
START UP

GOES TO COMPANIES, WHICH HAVE A PRODUCT BUT
MUST DO SOMETHING WITH IT.
FIRST ROUND

GOES TO COMPANIES WHICH HAVE USUALLY
PROGRESSED BEYOND A START-UP – USUALLY TO
PROMOTE GROWTH.

9. Contd…
SECOND ROUND
• ALSO CALLED “SUBSEQUENT ROUND” - FOR PROMOTING
OR SUSTAINING GROWTH. IT MAY ALSO BE A “SAVING
INVESTMENT” OR “BAIL OUT” IF THE COMPANY HAS NOT
PERFORMED UPTO EXPECTATION.
BRIDGE/ MEZZANINE FINANCING
• THIS IS ALSO CALLED “MEZZANINE FINANCING”. THIS
CAPITAL IS GIVEN FOR A SPECIFIC PURPOSE, EG., TO
COVER EXPENSES INCIDENTAL TO THE RECEIPT OF
LARGE PRODUCT ORDER.

10. VC PROCESS

DEAL SOURCING

INITIAL EVALUATION

DUE DILIGENCE & APPRAISAL

DEAL STRUCTURING

MONITORING & NURTURING

EXIT

11. Establish fund & Target investment opportunities
Raise Capital for Investment
Generate deal flow. Identify new & Young
companies with high potential
Screen & Evaluate deals
Due diligence & Appraisal
Deal Structuring
Monitoring & Nurturing
Exit

12. WHAT A VENTURE CAPITALIST LOOKS FOR












Promoter of repute and integrity.
Team.
An idea that will address large markets.
Attractiveness of technology and fit.
Upside potential and down side exposure.
Anticipated growth rate.
Age and stage of development.
Fund requirement.
Goal congruence.
Additional round of funds.
Returns.
Exit.

13. VALUE ADDITION BY VENTURE CAPITAL

BUILDING UP SYSTEMS & PROCEDURES, LEGAL &
STATUTORY COMPLIANCES

NEGOTIATION FOR TECHNOLOGY TRANSFER & TIE-UPS

KEY PERSONNEL RECRUITMENT & TEAM BUILDING

MARKETING TIE-UPS

NETWORKING

RESOURCE MOBILIZATION

APPOINTMENT OF EXPERTS & CREATION OF ADVISORY
BOARDS

CORPORATE GOVERNANCE

HELPING COMPANIES PARTICIPATE IN VARIOUS FORUMS

ORGANIZING TRAINING, WORKSHOPS FOR COMPANIES

14. THANK YOU