VENTURE CAPITALIST: CHANGING THE FACE OF EQUITY MARKET Presented by: Avneesh Kumar

Introduction of Venture Capitalist Venture capital is a type of Private equity capital typically provided to early- stage, high potential, growth companies in the interest of generating a return.

Stages in Venture Capitalist Financing 1.Early stage financing Seed Capital Start-up stage Financing Second round Financing 2. Later stage Financing Expansion Financing Replacement Capital Management Capital Rescue Capital

Features of Venture Capital Equity Participation venture financing is potential equity participation through direct purchase of shares, options or convertible securities. Long-term Investment venture financing requires long-term investment attitude that necessitates the Venture capital firms(VFCs) to wait for a long period, say 5 to 10 years, to make large profits. Participation in management Venture Financing ensures continuing participation of the venture capitalist in the management of the entrepreneur’s business.

Development in India This concept was introduced in India in It was operated by “Industrial Development bank of India”. In the same year “Industrial Credit and Investment Corporation of India was also started venture capital activity. Government started levied 5% cess on all payment related to venture fund. Venture Capital activity in the past was possibly done by the development financial institutions like IDBI, ICICI and State financial Corporations. In India, the need for venture Capital was recognized in the 7 th five year plan and long term fiscal policy by GOI.

Venture Capital in India can be categorized into the following four groups VCFs promoted by central government controlled development finance institutions IFCI (Industrial finance corporation of India) RCTFCI (Risk Technology and Finance Corporation) Risk capital fund by IDBI VCFs promoted by the state government controlled development finance institutions. GVFCL(Gujrat venture finance company limited) APVCL(Andhra pradesh State finance corporation) VCFs promoted by public sector banks such as canfina (canara finance) by canara bank, SBI-cap by SBI VCFs promoted by foreign bank and private sector companies and financial institutions such as Indus venture fund, grindlay;s India development fund.

The venture capital investment Process The venture capital activity is a sequential process involving the following six steps  deal origination  Screening  Due diligence evaluation  Deal structuring  Post-investment activity  Exit

Deal origination: In generating a deal flow, the VC investor creates a pipeline of deals or investment opportunities that he would consider for investing. Deals may be referred to VCFs by their parent organizations, trade partners, industry associations, friends etc. Screening: VCFs, before going for an in-depth analysis, carry out initial screening of all projects on the basis of some broad criteria. The size of investment, geographical location and stage of financing could also be used as the broad screening criteria.

 Due Diligence: Due diligence is the industry jargon for all the activities that are associated with evaluating an investment proposal. The venture capitalists evaluate the quality of entrepreneur before appraising the characteristics of the product, market or technology. The evaluation of ventures by VCFs in india includes;. Preliminary evaluation ( the applicant required to provide a brief profile of the proposed venture to establish prima facie eligibility & Detailed evaluation). Detailed evaluation ( once the primary evaluation is over, the proposal is evaluated in greater detail. VCFs in India expected the entrepreneur to have-integrity, long term vision, managerial skills, commercial orientation )

Deal Structuring: venture capitalist and the venture company negotiate the terms of the deals, that is the amount, form and price of the investment. The agreement also include the venture capitalist’s right to control the venture company and to change its management if needed, buyback arrangements, acquisition, making initial offerings(IPOs) etc. Earned out arrangements specify the entrequreneur’s equity share and the objectives to be achieved.

Post Investment activities: venture capitalist generally assumes the role of a partner and collaborator. The degree of the venture capitalists involvement depends on his policy. If a financial or managerial crisis occurs, the venture capitalists may intervene, and even install a new managerial team Exit : Venture capitalists generally want to cash-out their gains in five to ten years after the initial investment. - IPOs - acquisition by another company - purchase of the venture capitalist’s shares by the promoter -purchase of the venture capitalist’s share by an outsider

Differences from traditional capital Venture capitalTraditional Less fluidMore fluid Requires high return rateBears lower rate Invested based on longer-run futureInvested based on immediate future Concerned with product and market potential Concerned with past performance Venture capitalist and partner are co-ownersLoaning bank is creditor

Venture capital Investment in India  investments in private equity and venture capital in india increased almost 600%...USD $7.46 billion.  key

SEBI Venture Capital Fund(VCFs) Regulations, 1996 Has a dedicated pool of capital raised in a manner specified in the regulations. Invests in venture capital undertakings(VCUs) in accordance with these regulations. A Venture Capital Undertakings means a domestic company whose shares are not listed on a recognized stock exchange in India Which is engaged in the business of providing services/production/manufacture of articles/things but does not include such activities/sectors as are specified in the negative list by SEBI with government approval

Changing the face of equity market

THANK YOU