enterp financing vc

8/2/2019 Enterp Financing VC

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Financing the Business

Venture Capital


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Stages of Business Development Funding

1 Early Stage

(Angel)1 Seed

Capital

2 Start Up

2 Expansion

(VC)1 Second

Stage

2 Third Stage

3 Forth Stage

1 Acquisitions

Description

Small amount to prove concept &financial feasibility.

Product Development & Initial Set up.No commercial sales yet.

Working capital for Initial Growth. Nopositive cash flow or Break-even yet

Rapid Sales Growth. Positive Profit

Bridge financing. To go the Public.

Assuming control of another company


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How does a VC operate1 Professionally managed pool of Equity Capital.

2 Equity Pool is formed by Limited Partners- wealthyindividuals, Pension funds & Foreign inventors

3 The pool is managed by general partner of theVenture Capital firm in exchange of a fee & % of Profit

4 Investment is done in companies at different Stages

1 Early Stage

2 Expansion Stage

3 Acquisition Stage

5 In return the VC participates in

1 Active involvement in monitoring the Portfolio

2 Finance Planning

3 Impart business skills to the firm


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Nature of Indian VC Industry

1 Silicon Valley has popularized concept of VC

2 In India it is a nascent industry

3 Local companies have not yet participated4 Some foreign VCs are operational in India

5 Most wealthy individuals prefer to park

wealth in real estate6 Some large banks run the VC as a part of

their portfolio


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% of VC Dollars invested by

Industry Sectors (2002)

1 Communications 30 %

2 Software 20 %

3 Retail & Media 16 %4 Computer H/W 09 %

5 Biotechnology 08 %

6 Health Care 06 %7 Others 11 %


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% Raised by Stage of Business (2002)

1 Start up & Seed 02 %

2 Early Stage 23 %

3 Expansion 57 %

4 Later Stage 18 %Factors considered for Investment decisions

1 Low Risk

2 Lesser deals to be Evaluated

3 Less Monitoring

4 Quick Returns


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Risk Capital Markets

1 Informal Risk Capital Market

2 Venture Capital Market

3 Public Equity Market


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Informal Risk Capital Market (Angel)

1 Invisible wealthy individuals, with equityparticipation

2 Virtually in accessible to many Entrepreneursbut it is a greatest pool of Risk Capital Market

3 They seek to understand the Industry & needaccess to the progress of the company

4 Considerations:

1 Evaluate Risk /Return Ratio2 Management Team

3 Commitment

4 Business Area


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Who to approach?

1 If your needs are small, raise the money from

your own resources - Family, Fools & Friends

2 If your plan is ambitious go approach an

Angel Investor

3 As the business develops contact a Venture

Capitalist.

4 Your VC will help get you more funds for the

next stage


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Philosophy & Objective of the

Venture Capital Firm

1 VCs objective is long term capital appreciation,The companys objective is survival and growth

2 Early financing will attract risk. VC expects morereturn and will invest less in the early stage

3 The VC may not seek control of the company.But will have at least have one seat on the board

4 It will leave the day-to-day operations to the

company but, offers financial help, advice,management, planning and with their contacts

5 Since it is a long term relationship, VC willexpect transparency and trust, no surprises


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Investment Decision of the VC

1 Investment decision is both an Art & Science

1 Art Intuition & Gut feeling

2 Science Systemic approach, Data gathering

2 Composition of its investment Portfolio Mix

1 No of Early Stage, Expansion Stage & Buy outs

2 Nature of Industries & Companies

3 Volume of Investment

4 Geographical area


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VCs Expectation from the Company

1 Strong Management Team

1 Solid Experience & Background

2 Teams Personal Commitment & Investment

3 Positive Family Support

4 Ability of the team to Execute

2 Unique Product Opportunity

1 Growing market opportunity

2 Diversity of the Market

3 Patents & Certifications


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VCs Expectation from the Company

4 Significant Capital Appreciation1 Stage of Involvement

2 Amount of Capital Invested

3 Return/Risk Ratio

4 Available Exit Options

5 Downside Risk

1 Assessment of Risk

2 Steps to mitigate the Risk


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Investment Process

1 Preliminary Screening

1 Executive Summery

2 Detailed Business Plan

2 Agreement on Preliminary Terms

1 Compatibility

2 Amount of Money Involved

3 Control

4 ROI

5 Exit Option


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Investment Process

3 Due Diligence

1 Survey & Meetings with all Related Parties

2 Financial Statements

4 Final Approval

1 MOU with all Terms & Conditions

2 Engage a competent Lawyer


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Approaching a VC

1 Understand the area of his focus2 Approach should be in a professional

business manner. Send a well conceived

Business Plan3 Take time to seek out an Introduction

4 Be ready with a well thought out OralPresentation

5 Develop early Rapport & Chemistry

6 Do not resort to a very Rigid Approach


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Guidelines for Dealing with VCs

1 Carefully select the VC. Avoid Shopworn2 Once accepted for further discussion, do not

discuss the deal with other VCs

3 Approach thro reliable Contact & discuss fees4 Do not include intermediary in initial meetings

5 Test market the concept for a few customersbefore you approach the VC

6 Be careful about what is Projected & Promised

7 Disclose any problems or negative situationsright in the first meeting


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8 Reach a reasonable understanding with the VCregarding timeframe of response

9 Do not sell the project based on response fromother VCs

10 Be careful about statements like there is nocompetition for this product

11 Do not show Financial Ignorance

12 Do not show concern for salaries or pastproblems

13 It is not love at first sight, so do not getdiscouraged if you are turned down by a VC..


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14 Do not try to impress the VC or be too friendly15 Be careful about VCs who do not want to know

your business (Dumb Capital)

16 Be concerned about the color of money17 Find out the track record of the VC

18 Take commitments from him

19 Go with a VC who treats you at Par

20 Approach VC only when absolutely required

21 Frugality is a great Virtue


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Factors in Valuation

1 Nature and History of the business2 Outlook of the Economy and the Industry

3 Net Value (Book Value) of the Stock

4 Weighted Average of Earnings of the company

less Costs

5 Dividend paying capacity of the company

6 Goodwill and other intangibles

7 Previous stock of sale8 Market price of the stock of similar companies in

the Industry


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Breaking News

Assume that you have been very lucky and getconsiderably big fortune from an unknown

relative. You have decided to become a

business Angel straight out of college, aftergetting your MBA.

What will be your Investment objectives?


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The Road not Taken

1 Mouthshut.com, CEO Mr. Faisal Farooque.

P2P information exchange, on products and

brands by consumers.

2 Plug HR, CEO Mr. Prashant Bhaskar manages

HR in 30 companies across 7 industries in 5

cities.

enterp financing vc

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