VENTURE CAPITAL

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VENTURE CAPITAL
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BACKGROUND

• FINANCIAL INSTITUTIONS THOUGH HAVE REMARKABLE
  WORK IN INDIA DURING LAST 3/4 DECADES, THEIR WORK
  IS SIMILAR TO COMMERCIAL BANKS.
• THOUGH SOME SCHEMES LIKE SEED CAPITAL, RISK
  CAPITAL FUNDS HAVE BEEN INTRODUCED STILL
  EVALUATION OF PROJECT AND FINANCING IS MAINLY ON
  THE CRITERIA SAFETY, SECURITY, LIQUIDITY,
  PROFITABILITY AND NOT POTENTIALITY.
• CAPITAL MARKET DOES NOT COME MUCH TO HELP THE
  RISKY ENTERPRISES.
• WE ARE AMIDS THE TECHNOLOGICAL REVOLUTION AND NEW
  BREED OF ENTREPRENEURS. TO MAKE THEIR INNOVATIONS
  SUCCESSFUL FINANCIAL SUPPORT IS VERY ESSENTIAL.

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CONCEPT OF VENTURE CAPITAL

• IN NARROW SENSE VENTURE CAPITAL IS INVESTMENT IN
  NEW AND TRIED ENTERPRISES LACKING TRACK RECORD.
• IN BROADER SENSE, IT REFERS TO COMMITMENT OF
  CAPITAL IN SHAREHOLDING FOR THE FORMATION AND
  SETTING UP OF SMALL FIRMS WITH NEW IDEAS AND
  TECHNOLOGY. IT IS NOT ONLY PROVIDING FUNDS BUT
  GUIDANCE AND HELP FOR OPTHER ACTIVITIES ALSO
• DEFINITION OF VENTURE CAPITAL COMPANY
• A FINANCING INSTITUTION WHICH JOINS AN
  ENTREPRENEUR AS A CO-PROMOTER IN A PROJECT AND
  SHARES THE RISKS AND REWARDS OF THE ENTERPRISE.

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FEATURES OF VENTURE CAPITAL

• 1. IT IS USUALLY IN THE FORM OF AN EQUITY
  PARTICIPATION, MAY ALSO TAKE FORM OF CONVERTIBLE
  DEBT OR LONG TERM LOAN.
• 2. INVESTMENT IS ONLY IN HIGH RISK BUT HIGH
  GROWTH POTENTIAL PROJECTS.
• 3. IT IS FOR COMMERCIALISATION OF NEW IDEAS
  /TECHNOLOGIES AND NOT FOR ENTERPRISES IN
  TRADING,FINANCING,AGENCY ETC.
• 4. THERE IS CONTINUOUS INVOLVEMENT IN THE
  ENTERPRISE.
• 5. SHARING OF RISKS AND REWARDS.
• 6. ONCE THE ENTERPRISE REACHES ITS FULL
  POTENTIAL LEVEL VENTURE CAPITALIST WILL DIVEST
  EITHER TO PROMOTERS OR IN THE MARKET. AND GET
  CAPITAL APPRECIATION.

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DISINVESTMENT MECHANISM

• 1) PROMOTERS BUYBACK
• 2) PUBLIC ISSUE
• 3) SALE TO OTHER VENTURE CAPITAL FUND
• 4) SALE IN OTC MARKET
• 5) MANAGEMENT BUY OUTS.

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SCOPE OF VENTURE CAPITAL

• VENTURE CAPITAL MAY TAKE DIFFERENT FORMS AT
  DIFFERENT STAGES
• 1) DEVELOPMENT OF IDEASSEED FINANCE
• 2) IMPLEMENTATION STAGE START UP FINANCE
• 3) FLEDGING STAGE ADDITIONAL FINANCE
  MANUFACTURING STAGE FUNDS FOR MATKETING
  INFRASTRUCTURE
• 4) ESTBLISHMENT STAGE ADDITIONAL FINANCE FOR
  EXPANSION AND DIVERSIFICATION

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IMPORTANCE OF VENTURE CAPITAL

• 1. ADVANTAGES TO INVESTING PUBLIC
• -- RISK REDUCTION OF INVESTING PEOPLE, VENTURE
  CAPITAL INSTITUTES INVOLVEMENT REDUCES CHANCES OF
  MALPRACTICES.
• -- MORE ACCURATE EVALUATION OF THE PROPORSAL
• -- CONTINUOUS FEEDBACK ABOUT THE PERFORMANCE
• 2. ADVANTAGES TO PROMOTERS
• -- NEED NOT APPROACH UNDERWRITERS, BROKERS,
  INVESTORS WILL HAVE TO CONVINCE ONLY VENTURE
  CAPITALIST
• -- PUBLIC ISSUE NEEDS LOT OF PREPARTION,INVOLVES
  HIGH COST AND UNCERTAINTY, WHICH CAN BE AVOIDED.
• -- COST OF PUBLIC ISSUE HIGHER, SOMETIMES 10 OF
  THE TOTAL ISSUE. MANY RECURRING COSTS SHARE
  HOLDERS REGISTERS, MEETINGS ETC. CAN BE AVOIDED.

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ADVANTAGES CONTD..

• III.GENERAL
• --- TIME LAG BETWEEN INNOVATION AND
  COMMERCIAL EXPLOITATION REDUCED.
• -- NEW VENTURES FREE FROM CORPORATE BUREAUCRACY
• -- VENTURE CAPITAL ACTS AS A CUSHION
  BANKERS/INVESTORS AND BUSINESS ENTERPRISE.
• -- ENTRY OF TECHNOCRATS IN THE BUSINESS WORLD
  FACILITATED.
• -- THERE CAN BE JOINT EFFORTS BY PRIVATE AND
  PUBLIC SECTOR.