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Venture Capital Venture Capital Prepared by Nadezda Chitrenko Definitions Venture capital

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Venture Capital Venture Capital Prepared by Nadezda Chitrenko Definitions Venture capital Powered By Docstoc
					           Venture Capital


Prepared by: Nadezda
Chitrenko
                 Definitions
Venture capital is a type of private equity
  capital typically provided by professional,
  outside investors to new, growth
  businesses.

A venture capitalist (VC) is a person who
  makes such investments.

A venture capital fund is an investment
  vehicle (often a limited partnership) that
  primarily invests the financial capital of
  third-party investors in enterprises that
  are too risky for the standard capital
  markets or bank loans.
          Main features

• involves high risk
• Above-average returns
• there is a lack of liquidity or
  marketability
• investment returns are primarily
  from capital gains
   History of Venture Capital

Georges Doriot -the father of the
 modern venture capital industry
1960-1970: synonymous with
 technology finance
1974: temporary downturn
1978: industry raised approximately
 $750,000
Roles within the VC firm


 General partners (Venture
  capitalists)= Executives

Limited partners= Investors
             ’’ Capital calls’’
      Fixed life of 10 years
   The investing cycle 3-5 years




This model was pioneered by successful funds in Silicon Valley
                       through the 1980s
         Compensation
“Two and 20" arrangement for General
  partners
  Requirements of Venture
         Capitalists

• Strict requirements for potential
  investors

• Bootstrapping
   Finding the right investors

• the final deal should be a partnership
  of professionals with complementary
  resources and shared goals
• value-added investors
• investor should be prepared and able
  to provide the additional funds
  required to finance growth
   The cost of venture capital
Vary substantially over the
   developmental stages of a new
   venture

1. Early-stage financing

2. Expansion financing
    1. Early-stage financing
• Seed financing (to prove a concept,
  initial steps – marketing research,
  business plan)
• Startup financing (completing
  product development, initial
  marketing)
• First-stage financing (to expend
  initial capital, initiate full-scale sales)
    2. Expansion financing
• Second-stage financing (initial
  expansion of company)
• Third-stage financing (major
  expansion of profitable company)
• Bridge financing (when company
  plans to go public, restructuring)
    Estimating the Return on
   Various Types of Financing
• usual (common) negotiated rates of
  return are from 25% to 50% and
  more
• the lower your investors´
  perceptions of risk, the lower will be
  their required return on investment
  (ROI)
• investors tend to think in terms of
  capital gains multiples rather than
  rates of return
 Emphasize the non-financial
 payoffs of investment in your
             venture
  The investors look back to non-
  financial payoffs
e.g. :
• generate jobs in areas of high
      unemployment
• assist in the economic revival of
      urban areas
 Pricing the deal: Think like
         an investor
Shared vision of the venture’s value
Structuring the deal – terms
       and conditions
The term and conditions
      Lessons from losers
• Lack of confidence in management
• Unsatisfactory risk/reward rations
• Absence of a well-defined business
  plan
• The investor’s unfamiliarity with
  products, processes, or markets
• In the case of angels, the business’s
  unattractiveness to the investor
     Social Venture Capital
Similarly well-acquainted with risk and
 project management activities

Will restrict their field of interest to those
 ventures whose rate of return is measured
 in terms of those metrics which best
 reflect the magnitude of socially positive
 results.
Thank You for Your attention!

				
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posted:1/13/2012
language:English
pages:19