Venture Capital Submitted To: Submitted By: Mr. Pardeep Kumar Parneet Ahluwalia Assist. Prof. MFS 175 MBA Venture capitalists only have two emotions: fear and greed. All their decisions are reached by balancing one against the other. Venture A course of action or proceeding, the outcome of which is uncertain but which is attended by the risk of danger of ‘loss’. Capital The resources to start the enterprise OR The money, property, and other valuables which collectively represent the wealth of an individual or business. Definition of venture capital wealth available for investment in new or speculative enterprises “Venture Capital is defined as long-term equity investment in novel technology based projects with display potential for significant growth and financial return.” - According to 1995 Finance Bill Venture capital financing Venture capital financing is a type of financing by venture capital: the type of private equity capital typically provided to early-stage, high-potential, growth companies in the interest of generating a return through an eventual realization event such as an IPO or trade sale of the company. ORIGIN OF VENTURE CAPITAL In the 1920’s and 30’s, the wealthy families of and individual investors provided the startup money for companies that would later become famous Eastern Airlines and Xerox are the more famous ventures they financed In its early years VC may have been associated with high technology, over the years the concept has undergone a change and as it stands today it implies pooled investment in unlisted companies Characteristics Of VC New Ventures. Continuous Involvement. Mode of Investment. Objective. Hands-on Approach. High risk-Return Ventures. Nature Of Firms. Liquidity. VENTURE CAPITAL INVESTMENT PROCESS Deal origination Screening Due diligence (Evaluation) Deal structuring Post investment activity Exit plan Dimensions of Venture Capital Equity Participation. Conventional loan. Condition Loan. Income Notes. Stages OF Venture Capital Financing A. Early Stage Financing Seed capital. Start-up Finance. Additional finance Second-round Financing. Establishing Finance. Stages of VC Financing (Contd.) Development Capital. Bridge/Expansion capital. Management Buyouts. Mgmt. Buyins. Turnarounds. Methods of Evaluation of VC A. Conventional Method. B. First Chicago Method. C. Revenue Multiplier Method. A. Conventional Method Annual Revenue. Expected Earnings level. Future Market Valuation. Present Value of VC. Minimum Percentage of Ownership. B. First Chicago Method Alternative Scenarios. Present value of VC . Expected value of VC. Minimum Percentage of Ownership : Finance sought * 100 Expected Present Value of the Venture Capitalist C. Revenue Multiplier Method Annual revenue of the company * estimated revenue multiplier Advantages Provides large sum of finance &expertise. Mentoring . Alliances . Facilitate exit. Business & Management Consultations. Additional Resources. Encourages new breed of Entrepreneur. Disadvantages Pricing / Negotiation. Intrusion Control / demand of the board of the company . Industry specific . Bring enormous pressure to profit quickly . Long and complex process. Requirement of Professional business Plan Drawer. Venture Capital industry in India Risk Capital and Technology Finance Corporation limited. IDBI venture capital fund. Technology development and Information Company of India Limited (TDICI) Indus Venture Capital fund. Small Industrial Development bank of India (SIDBI). Gujarat Venture Finance Limited. Others.