Management of venture capital companies
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This document discusses venture capital management. It begins with an introduction to venture capital as a form of risk capital invested in businesses with potential for future profits and cash flows. It then outlines the stages of venture capital financing including early, later, and growth stages. The document also discusses the venture capital investment process, growth of venture capital in India driven by factors like rising prosperity and technology, and some problems in India's venture capital market like governance, regulations, and exit routes.
Management of venture capital companies
- 2. AGENDA • Venture Capital – Introduction • Venture Capital Fund • Stages of Venture Capital Financing • Venture Capital Investment Process • Growth of Venture Capital Financing in India • Problems in Venture Capital Financing in India • Private Equity
- 3. Venture Capital - Introduction • Venture Capital is a form of "risk capital". In other words, capital that is invested in a business where there is a substantial element of risk relating to the future creation of profits and cash flows.
- 4. Venture Capital Fund • Venture capital fund refers to a business entity that makes investment in the highly risk oriented companies, with an expectation of earning high returns. • The venture capital Fund may be in the form of a Trust, a company registered under Securities and Exchange Board of India (Venture Capital Fund) Regulations, 1996. • For Example, IFCI Venture Capital Fund in India.
- 5. Stages of Venture Capital Financing
- 6. Early Stage Financing Seed Capital: • This stage is related to research phase, where concepts and ideas of the entrepreneur are the basis for the commercialization of the research project. • The risk involved here is that the research may or may not lead to commercial production of the product.
- 7. Continued… Start Up Capital: • The company needs finance for product development, initial marketing etc. • This stage attracts venture capital funds, since there is scope for capital appreciation.
- 8. Continued… Second Round Financing: • At this stage, the product has been launched, but business has not become profitable to attract new funds. The company may need second round finance because of over-run of time and cost, negative earnings in the start up stage etc.
- 9. Later Stage Financing Mezzanine/Development capital: • An established company needs finance for expanding its production capacity, marketing and sales.
- 10. Continued… Bridge Finance: • The main goal of this stage is for the venture to go public so that investors can exit the venture with a profit commensurate with the risk they have taken. In general, this is the last stage of the venture capital financing process. • Bridge finance is the capital provided on a short term basis to a company prior to its going public or its next major private equity transaction. • The bridge between expanding the company and the IPO.
- 11. Continued… Buy Outs: • At this stage, an established company requires funds for acquiring another business entity for growth.
- 12. Continued… Turnaround: • In this stage, an established company needs funds for addressing temporary financial or operational distress.
- 13. Venture Capital Investment Process 1. Deal Origination 2. Due Diligence 3. Investment Valuation 4. Pricing and structuring the deal 5. Value Addition and Monitoring 6. Exit
- 14. Exit Routes • IPO • Purchase by the promoter • Purchase by outsider • Acquisitions • Liquidation
- 15. Growth of Venture Capital Financing in India • Venture Capital in India dates back to early 70's when Govt of India appointed a committee laid by Late Shri R.S.Bhatt to find out the ways to meet a void in conventional financing for funding start-up companies based on absolutely new innovative technologies. • Such companies either did not get any financial support or the funding was inadequate which resulted into their early mortality.
- 16. Continued… • The committee recommended starting of Venture Capital industry in India. • In mid 80's three all India financial institutions viz IDBI, ICICI, IFCI started investing into the equity of small technological companies. • The venture capital industry in India has grown dramatically in the last few years, even boasting its own silicon valley in the form of Bangalore.
- 17. Reasons For Growth of VC in India The growing wealth of the Indian economy and the accompanying increase in consumeritization is underpinning the growth of the VC industry Companies addressing changing consumer behavior patterns -the largest proportion of the total pool of VC backed companies is in consumer services (170 companies out of a pool of 528) The introduction of new technology, particularly internet based applications such as cloud and mobile.
- 18. Continued… Rising economic Prosperity has increased the pool of entrepreneurs willing to take a risk on VC investment. The entrepreneurial ecosystem is becoming more developed as the availability of higher education has spread to third and fourth tier cities, with a corresponding increase in the engineering and medical schools.
- 19. Continued… The growth of India’s investor community and the resulting increase in the amount of capital being invested in purely domestic opportunities provides India’s VC industry with a degree of insulation from global shocks, and the outlook for the coming year is therefore relatively positive.
- 20. Problems in Venture Capital Financing in India • Poor quality corporate governance • Regulatory Framework • Exit Route.