VENTURE CAPITAL

							VENTURE CAPITAL
                   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.
              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.”
       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.
       DISINVESTMENT MECHANISM


• 1) PROMOTER’S BUYBACK
• 2) PUBLIC ISSUE
• 3) SALE TO OTHER VENTURE CAPITAL
  FUND
• 4) SALE IN OTC MARKET
• 5) MANAGEMENT BUY OUTS.
              SCOPE OF VENTURE CAPITAL

•   VENTURE CAPITAL MAY TAKE DIFFERENT FORMS AT DIFFERENT
    STAGES
•   1) DEVELOPMENT OF IDEAS—SEED 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
           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.
                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.