VENTURE CAPITAL
BY VINAYAK JAYANATH PRATIK DOSHI SHARVARI PATIL RUCHITA JAIN JHARNA HAZARIKA AKSHATA KHANKAL
What is Venture Capital?
? Financing for new businesses. In other words, money provided by investors to startup firms and small businesses with perceived, long-term growth potential. ? This is a very important source of funding for startups that do not have access to capital markets. It typically entails high risk for the investor, but it has the potential for above-average returns.
Origins of Venture Capital
? One of the first steps toward a professionally-managed venture capital industry was the passage of the Small Business Investment Act of 1958. The 1958 Act officially allowed the U.S. Small Business Administration (SBA) to license private "Small Business Investment Companies" (SBICs) to help the financing and management of the small entrepreneurial businesses in the United States
Main Players
? Venture Capitalists: A person or investment firm that makes entire investments. ? Small groups: small groups refers to the people with expertise knowledge and with business trainings ,but are unable to finance themselves in the public market. ? Angel Investors : they are investors who are not concerned with profits of the company but are only act as an initial funding source.
Services provided by the main players
? Buyouts ? Structured transactions ? Growth Capital ? Roll-ups
Structure of Venture Capital Firms
? Venture capital firms are typically structured as partnerships ? The general partners of which serve as the managers of the firm and will serve as investment advisors to the venture capital funds raised. ? Investors in venture capital funds are known as limited partners. This constituency comprises both high net worth individuals and institutions with large amounts of available capital, such as foundations, insurance companies, and pooled investment vehicles, called fund of funds or mutual funds.
Diagram of the structure of a generic venture capital fund
Types of Venture Capital Firms
? Depending on your type business, the venture capital firm you approach will differ. For instance, if you're an internet [startup company], funding requests from a more manufacturing-focused firm will not be effective. Doing some initial research on which firms to approach will save time and effort. When approaching a VC firm, consider their portfolio: ? Business Cycle: Do they invest in budding or established businesses? ? Industry: What is their industry focus? ? Investment: Is their typical investment sufficient for your needs? ? Location: Are they regional, national or international? ? Return: What is their expected return on investment? ? Involvement: What is their involvement level?
Roles within Venture Capital Firms
? Within the venture capital industry, the general partners and other investment professionals of the venture capital firm are often referred to as "venture capitalists" or "VCs". Typical career backgrounds vary, but broadly speaking venture capitalists come from either an operational or a finance background. Venture capitalists with an operational background tend to be former founders or executives of companies similar to those which the partnership finances or will have served as management consultants. Venture capitalists with finance backgrounds tend to have investment banking or other corporate finance experience
Roles within Venture Capital Firms
? Although the titles are not entirely uniform from firm to firm, other positions at venture capital firms include: ? Venture partners - Venture partners are expected to source potential investment opportunities ("bring in deals") and typically are compensated only for those deals with which they are involved. ? Entrepreneur-in-residence (EIR) - EIRs are experts in a particular domain and perform due diligence on potential deals. EIRs are engaged by venture capital firms temporarily (six to 18 months) and are expected to develop and pitch startup ideas to their host firm (although neither party is bound to work with each other). Some EIR's move on to executive positions within a portfolio company.
Roles within Venture Capital Firms
? Principal - This is a mid-level investment professional position, and often considered a "partner-track" position. Principals will have been promoted from a senior associate position or who have commensurate experience in another field such as investment companies or management consultants. ? Associate - This is typically the most junior apprentice position within a venture capital firm. After a few successful years, an associate may move up to the "senior associate" position and potentially principal and beyond. Associates will often have worked for 1-2 years in another field such as investment companies or management consultants.
Venture Capital Fund
? An investment fund that manages money from investors seeking private equity stakes in startup and small- and medium-size enterprises with strong growth potential. ? These investments are generally characterized as high-risk/highreturn opportunities
Structure of a Venture Capital Fund
? Most Venture Capital Fund have a fixed life of 10 years, with the possibility of a few years of extensions to allow for private companies still seeking liquidity. The investing cycle for most funds is generally three to five years, after which the focus is managing and making follow-on investments in an existing portfolio. In such a fund, the investors have a fixed commitment to the fund that is initially unfunded and subsequently "called down" by the venture capital fund over time as the fund makes its investments. There are substantial penalties for a Limited Partner (or investor) that fails to participate in a capital call.
Structure of a Venture Capital Fund
? It can take anywhere from a month or so to several years for venture capitalists to raise money from limited partners for their fund. At the time when all of the money has been raised, the fund is said to be closed and the 10 year lifetime begins. Some funds have partial closes when one half (or some other amount) of the fund has been raised. "Vintage year" generally refers to the year in which the fund was closed and may serve as a means to stratify VC funds for comparison
Compensation
? Management fees an annual payment made by the investors in the fund to the fund's manager to pay for the private equity firm's investment operations. In a typical venture capital fund, the general partners receive an annual management fee equal to up to 2% of the committed capital. ? Carried interest - a share of the profits of the fund (typically 20%), paid to the private equity fund s management company as a performance incentive. The remaining 80% of the profits are paid to the fund's investors Strong Limited Partner interest in top-tier venture firms has led to a general trend toward terms more favorable to the venture partnership, and certain groups are able to command carried interest of 25-30% on their funds.
Who are Venture Capitalists?
? An investor who either provides capital to startup ventures or supports small companies that wish to expand but do not have access to public funding. ? Venture capitalists usually expect higher returns for the additional risk taken by them.
Stages in Company·s Developments offered by Venture Capitalists
Venture capitalists typically assist at four stages in the company's development: ? Idea generation: is a concept which can be used for commercial purposes ? Start-up : is a company with a limited operating history ? Ramp up: an increase in firm production ahead of anticipated increases in product demand. ? Exit: Is a means of escaping one's current situation, typically an unfavorable situation.
Stages of Financing offered by Venture Capitalists
There are typically six stages of financing offered in Venture Capital, that roughly correspond to these stages of a company's development. ? ? Seed Money: Low level financing needed to prove a new idea (Often provided by "angel investors") Start-up: Early stage firms that need funding for expenses associated with marketing and product development ? ? First-Round: Early sales and manufacturing funds Second-Round: Working capital for early stage companies that are selling product, but not yet turning a profit ? ? Third-Round: Also called Mezzanine financing, this is expansion money for a newly profitable company Fourth-Round: Also called bridge financing, 4th round is intended to finance the "going public" process
Venture Capital in India
? Phase I - Formation of TDICI in the 80 s and regional funds as GVFL & APIDC in the early 90s. ? Phase II - Entry of Foreign Venture Capital funds (VCF) between 1995-1999 ? Phase III - (2000 onwards). Emergence of successful India-centric VC firms ? Phase IV (current) Global VCs and PE firms actively investing in India ? 150 Funds active in the last 3 years (Government, Overseas, Corporate, Domestic)
Growth of Venture Capital In India
The Opportunity
Top Cities Attracting venture Capital Investment
Venture capital Firms In India
? IDBI Venture Capital Fund ? Technology Development and Information Co. Ltd(TDICL) ? 20th Century Venture Capital Fund ? Indus ? India Investment Fund ? 2i Capital (India) Private Limited ? Baring Private Equity Partners (India) Limited ? Global Technology Ventures Ltd
Current Scenario of Venture Capital in India
Future of Venture Capital in India
? Whopping investments of over USD 8.5 billion is expected in Indian from Venture Capitalists in next five years in at least five identified areas such as : ? Biotechnology and Life Sciences ? Logistics ? Clean technology ? Film Production ? Education
Future of venture Capital In India
? The dynamics in emerging venture capital markets differ from those in developed venture capital markets. ? The emerging private equity markets focus primarily on growth capital investments through minority equity participation. ? Emerging venture capital markets, although not without challenges, present a host of opportunities.
Future of Venture Capital
? Venture capital returns are predicated on scarcity of risk capital. It has been all too abundant. That will change. ? Many good businesses will be left helpless and the rest will shut down the remaining VCs will invest in them and both the entrepreneurs and VCs will get rewarded as the survivors gain market share and become successes in the economic recover. ? The economic recovery plan of the new Administration will be massive and favour investments in productivity-enhancing growth sectors like information technology and energy technology
doc_525225490.ppt
BY VINAYAK JAYANATH PRATIK DOSHI SHARVARI PATIL RUCHITA JAIN JHARNA HAZARIKA AKSHATA KHANKAL
What is Venture Capital?
? Financing for new businesses. In other words, money provided by investors to startup firms and small businesses with perceived, long-term growth potential. ? This is a very important source of funding for startups that do not have access to capital markets. It typically entails high risk for the investor, but it has the potential for above-average returns.
Origins of Venture Capital
? One of the first steps toward a professionally-managed venture capital industry was the passage of the Small Business Investment Act of 1958. The 1958 Act officially allowed the U.S. Small Business Administration (SBA) to license private "Small Business Investment Companies" (SBICs) to help the financing and management of the small entrepreneurial businesses in the United States
Main Players
? Venture Capitalists: A person or investment firm that makes entire investments. ? Small groups: small groups refers to the people with expertise knowledge and with business trainings ,but are unable to finance themselves in the public market. ? Angel Investors : they are investors who are not concerned with profits of the company but are only act as an initial funding source.
Services provided by the main players
? Buyouts ? Structured transactions ? Growth Capital ? Roll-ups
Structure of Venture Capital Firms
? Venture capital firms are typically structured as partnerships ? The general partners of which serve as the managers of the firm and will serve as investment advisors to the venture capital funds raised. ? Investors in venture capital funds are known as limited partners. This constituency comprises both high net worth individuals and institutions with large amounts of available capital, such as foundations, insurance companies, and pooled investment vehicles, called fund of funds or mutual funds.
Diagram of the structure of a generic venture capital fund
Types of Venture Capital Firms
? Depending on your type business, the venture capital firm you approach will differ. For instance, if you're an internet [startup company], funding requests from a more manufacturing-focused firm will not be effective. Doing some initial research on which firms to approach will save time and effort. When approaching a VC firm, consider their portfolio: ? Business Cycle: Do they invest in budding or established businesses? ? Industry: What is their industry focus? ? Investment: Is their typical investment sufficient for your needs? ? Location: Are they regional, national or international? ? Return: What is their expected return on investment? ? Involvement: What is their involvement level?
Roles within Venture Capital Firms
? Within the venture capital industry, the general partners and other investment professionals of the venture capital firm are often referred to as "venture capitalists" or "VCs". Typical career backgrounds vary, but broadly speaking venture capitalists come from either an operational or a finance background. Venture capitalists with an operational background tend to be former founders or executives of companies similar to those which the partnership finances or will have served as management consultants. Venture capitalists with finance backgrounds tend to have investment banking or other corporate finance experience
Roles within Venture Capital Firms
? Although the titles are not entirely uniform from firm to firm, other positions at venture capital firms include: ? Venture partners - Venture partners are expected to source potential investment opportunities ("bring in deals") and typically are compensated only for those deals with which they are involved. ? Entrepreneur-in-residence (EIR) - EIRs are experts in a particular domain and perform due diligence on potential deals. EIRs are engaged by venture capital firms temporarily (six to 18 months) and are expected to develop and pitch startup ideas to their host firm (although neither party is bound to work with each other). Some EIR's move on to executive positions within a portfolio company.
Roles within Venture Capital Firms
? Principal - This is a mid-level investment professional position, and often considered a "partner-track" position. Principals will have been promoted from a senior associate position or who have commensurate experience in another field such as investment companies or management consultants. ? Associate - This is typically the most junior apprentice position within a venture capital firm. After a few successful years, an associate may move up to the "senior associate" position and potentially principal and beyond. Associates will often have worked for 1-2 years in another field such as investment companies or management consultants.
Venture Capital Fund
? An investment fund that manages money from investors seeking private equity stakes in startup and small- and medium-size enterprises with strong growth potential. ? These investments are generally characterized as high-risk/highreturn opportunities
Structure of a Venture Capital Fund
? Most Venture Capital Fund have a fixed life of 10 years, with the possibility of a few years of extensions to allow for private companies still seeking liquidity. The investing cycle for most funds is generally three to five years, after which the focus is managing and making follow-on investments in an existing portfolio. In such a fund, the investors have a fixed commitment to the fund that is initially unfunded and subsequently "called down" by the venture capital fund over time as the fund makes its investments. There are substantial penalties for a Limited Partner (or investor) that fails to participate in a capital call.
Structure of a Venture Capital Fund
? It can take anywhere from a month or so to several years for venture capitalists to raise money from limited partners for their fund. At the time when all of the money has been raised, the fund is said to be closed and the 10 year lifetime begins. Some funds have partial closes when one half (or some other amount) of the fund has been raised. "Vintage year" generally refers to the year in which the fund was closed and may serve as a means to stratify VC funds for comparison
Compensation
? Management fees an annual payment made by the investors in the fund to the fund's manager to pay for the private equity firm's investment operations. In a typical venture capital fund, the general partners receive an annual management fee equal to up to 2% of the committed capital. ? Carried interest - a share of the profits of the fund (typically 20%), paid to the private equity fund s management company as a performance incentive. The remaining 80% of the profits are paid to the fund's investors Strong Limited Partner interest in top-tier venture firms has led to a general trend toward terms more favorable to the venture partnership, and certain groups are able to command carried interest of 25-30% on their funds.
Who are Venture Capitalists?
? An investor who either provides capital to startup ventures or supports small companies that wish to expand but do not have access to public funding. ? Venture capitalists usually expect higher returns for the additional risk taken by them.
Stages in Company·s Developments offered by Venture Capitalists
Venture capitalists typically assist at four stages in the company's development: ? Idea generation: is a concept which can be used for commercial purposes ? Start-up : is a company with a limited operating history ? Ramp up: an increase in firm production ahead of anticipated increases in product demand. ? Exit: Is a means of escaping one's current situation, typically an unfavorable situation.
Stages of Financing offered by Venture Capitalists
There are typically six stages of financing offered in Venture Capital, that roughly correspond to these stages of a company's development. ? ? Seed Money: Low level financing needed to prove a new idea (Often provided by "angel investors") Start-up: Early stage firms that need funding for expenses associated with marketing and product development ? ? First-Round: Early sales and manufacturing funds Second-Round: Working capital for early stage companies that are selling product, but not yet turning a profit ? ? Third-Round: Also called Mezzanine financing, this is expansion money for a newly profitable company Fourth-Round: Also called bridge financing, 4th round is intended to finance the "going public" process
Venture Capital in India
? Phase I - Formation of TDICI in the 80 s and regional funds as GVFL & APIDC in the early 90s. ? Phase II - Entry of Foreign Venture Capital funds (VCF) between 1995-1999 ? Phase III - (2000 onwards). Emergence of successful India-centric VC firms ? Phase IV (current) Global VCs and PE firms actively investing in India ? 150 Funds active in the last 3 years (Government, Overseas, Corporate, Domestic)
Growth of Venture Capital In India
The Opportunity
Top Cities Attracting venture Capital Investment
Venture capital Firms In India
? IDBI Venture Capital Fund ? Technology Development and Information Co. Ltd(TDICL) ? 20th Century Venture Capital Fund ? Indus ? India Investment Fund ? 2i Capital (India) Private Limited ? Baring Private Equity Partners (India) Limited ? Global Technology Ventures Ltd
Current Scenario of Venture Capital in India
Future of Venture Capital in India
? Whopping investments of over USD 8.5 billion is expected in Indian from Venture Capitalists in next five years in at least five identified areas such as : ? Biotechnology and Life Sciences ? Logistics ? Clean technology ? Film Production ? Education
Future of venture Capital In India
? The dynamics in emerging venture capital markets differ from those in developed venture capital markets. ? The emerging private equity markets focus primarily on growth capital investments through minority equity participation. ? Emerging venture capital markets, although not without challenges, present a host of opportunities.
Future of Venture Capital
? Venture capital returns are predicated on scarcity of risk capital. It has been all too abundant. That will change. ? Many good businesses will be left helpless and the rest will shut down the remaining VCs will invest in them and both the entrepreneurs and VCs will get rewarded as the survivors gain market share and become successes in the economic recover. ? The economic recovery plan of the new Administration will be massive and favour investments in productivity-enhancing growth sectors like information technology and energy technology
doc_525225490.ppt