VIEWS: 5 PAGES: 19 POSTED ON: 1/13/2012
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!
Pages to are hidden for
"Venture Capital Venture Capital Prepared by Nadezda Chitrenko Definitions Venture capital"Please download to view full document