Venture Capital
Financing
By- Rahul Jain
What Is Venture Capital?
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High Risk Capital Seeking 50%+ Annual
Rates of Return
Active Investors Who Will Step In and
Make Changes to Protect Their Investment
Experienced Investors Who Know How to
Build Large Companies
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Some Statistics
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99%+ of All Startups Do Not Require
Institutional Venture Capital
VCs average initial investment is $3M+
Average Dilution from Initial VC
Investment is 40%+
VCs look at over 100 business plans for
every one they finance
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Features of Venture Capital
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Equity Participation.
Long-term Investments.
Participation in Management.
Venture capitalist combines the
qualities of bankers, stock market
investors and entrepreneur in one.
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When Is VC Good
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Heavy R&D Component of the business
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Semi conductors
Biotech
Datacomm Equipment
Very Large Opportunity Requiring A Lot of
Working Capital
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Federal Express
Amazon.com
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When is VC Wrong For You
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Too Early – You Don’t Have Enough to
Show Yet (Revenues, Product, Team)
Too Small – You Only Need A Couple
Million to Get Profitable
Not Proprietary – Your Business Has No
Barriers to Entry. It is Just An Execution
Game.
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When Is VC Wrong For You
[continued]
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You Need to Move Fast
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Raising VC takes 3-6 months minimum
You Are Dilution Sensitive
You Need To Be In Control
You Don’t Need It
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Stages in Venture Financing
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Early Stage Financing
Expansion Financing
Acquisition/Buyout Financing
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Venture Capital Investment
Process
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Deal Origination
Screening
Evaluation
Deal Structuring
Post-investment activity
Exit
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Methods of Venture Financing
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Equity
Conditional Loan
Income Note
Other Financing Methods
1.
2.
3.
4.
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6.
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Participating Debentures
Partially Convertible Debentures
Cumulative Convertible Preference Shares
Deferred Shares
Convertible Loan Stock
Special Ordinary Shares
Preferred Ordinary Shares
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Disinvestment Mechanisms
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Buybacks
Initial Public Offerings
Secondary Stock Markets
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Entrepreneurs’ Role
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Entrepreneurs are drivers of innovations, of
job creation and of economic development.
Entrepreneurship should be advocated and
supported by the entire business world.
Entrepreneurs in developed economies
consider the primary contribution of the
venture capitalists to be other than financial.
Assistance with recruitment, financial
planning, strategic partnering and complex
negotiations are important contributions of
VCs.
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Entrepreneurial Requirement
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To build entrepreneurial companies,
there is need
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To develop service infrastructure.
To reduce bureaucracy with regard to the
creation of small businesses.
To provide adequate incentives for
entrepreneurs by reforming tax treatment of
stock options and capital gains.
To reform labour laws that takes into account
the needs and limitations of small businesses.
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Future Prospects of Venture
Financing
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Rehabilitation of sick units.
Assist small ancillary units to upgrade
their technologies.
Provide financial assistance to people
coming out of universities etc.
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Success of Venture Capital
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Entrepreneurial Tradition.
Unregulated Economic Environment.
Disinvestment Avenues.
Fiscal Incentives.
Broad Based Education.
Venture Capital Managers.
Promotion Efforts.
Institute Industry Linkage.
R&D Activities.
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References
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Financial Management by I.M. Pandey
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