2. INTRODUCTION
CAPITAL
Fund employed in any business activity.
Most important factor for production.
No economic entity can function without capital.
Venture
capital
V
enture capital is significant innovation of 20th century. It is generally consider as
synonym of risky capital
V
enture capital is a new financial service, the emergence of which wants towards
developing strategies to help a new class of new entrepreneurs to translate their
business ideas into realities.
3. What is V
enture Capiatl?
V
enture Capital is “equity support to fund a new concepts that involve a higher risk and
at the same time, have a high growth and profit.”
“V
enture Capital is broadly implies an investment of long term, equity finance in high
risk projects with high rewards possibilities.”
4.
5. Stages in venture capital
1. Seed Money:
Low level financing needed to prove a new idea.
2. Start-up:
Early stage firms that need funding for expenses associated with marketing
and product development.
3. First-Round:
Early sales and manufacturing funds.
4. Second-Round:
Working capital for early stage companies that are selling product, but not yet turning a
profit.
5. Third-Round:
Also called Mezzanine financing, this is expansion money for a newly profitable company
6. Fourth-Round:
Also called bridge financing, it is intended to finance the "going public process”
6. ROLES WITHIN A VENTURE CAPITAL
FIRM
1. Venture
capital general partners: Also known in this case as
"venture capitalists" or "VCs" are the executives in the firm.
2. Limited partners: Investors in venture capital funds are known
as limited partners.
3. Venture partners: Venture partners "bring in deals" and receive
income only on deals they work on.
4. Entrepreneur in residence: EIRs are experts in a particular
domain and perform due diligence on potential deals. EIRs are
engaged by VC firms Some EIR's move on to roles such as
Chief Technology Officer (CTO) at a portfolio company
7. FEA
TURES OF VENTURE CAPITAL
The main features of venture capital are:
Long-time horizon: In general, venture capital undertakings take a longer time say, 5-10
years at a minimum to come out commercially successful; one should, thus, be able to
wait patiently for the outcome of the venture.
Lack of liquidity: Since the project is expected to run at start-up stage for several
years, liquidity may be a greater problem.
High risk: The risk of the project is associated with management, product and
operations.
High-tech: However, a venture capitalist looks not only for hightechnology but the innovativeness through which the project can succeed.
Equity participation and capital gains: A venture capitalist invests his money in terms of
equity.
He does not look for any dividend or other benefits, but when the project commercially
succeeds, then he can enjoy the capital gain which is his main benefit.
Participation in management: Unlike the traditional financier or banker, the venture
capitalist can
provide managerial expertise to entrepreneurs besides money.
9. ADV
ANTAGES OF VENTURE CAPITAL
Economy Oriented
Helps in industrialization of the country
Helps in the technological development of the country
Generates employment
Helps in developing entrepreneurial skills
Investor oriented
Benefit to the investor is that they are invited to invest only after
company starts earning profit,
so the risk is less and healthy growth of capital market is entrusted.
Profit to venture capital companies.
Helps them to employ their idle funds into productive avenues.
10. Entrepreneur oriented
Finance - The venture capitalist injects long-term equity finance, which
provides a solid capital
base for future growth.
Business Partner - The venture capitalist is a business partner, sharing the
risks and rewards.
Mentoring –
Alliances - The venture capitalist also has a network of contacts in
many areas that can add value to the company
Facilitation of Exit
The venture capitalist is experienced in the process of preparing a company for
an initial public offering (IPO) and facilitating in trade sales.
11. Methods of venture capital
equity
Conditional loan
Income note
Other financing method
