1. Entrepreneurship Management Sources of capital Prof Bharat Nadkarni

2. Entrepreneurship Management Sources of capital Sources of Capital 1.Self 2.Family and friends 3.Suppliers and trade credit 4.Commercial banks 5.Asset-based lenders 6.Institutions and insurance cos 7.Venture capital 8.Private equity placements 9.Public equity offerings 10.Government programs

3. Length of Time CostControl Source of FinancingShort Term Long Term Fixed Rate Debt Floatin g Rate Debt % of profits EquityCovenants / Collaterals Voting Rights SelfXXX Family and FriendsXXXXXX Suppliers and trade creditXX Commercial BanksXXXX Asset-based lendersXXXX Institutions and insurance cos XXXXX Venture capitalXXXX Private equity placementsXXX Public equity offeringsXX Govt. ProgramsX

4. Entrepreneurship Management Sources of capital Stages of Business Development Funding A.Early stage financing Seed capital – Relatively small amounts to prove concepts and finance feasibility studies. Start-up – Product development and initial marketing, but with no commercial sales yet; funding to actually get company operations started. B.Expansion or Development financing Second stage – Working capital for initial growth phase, but no clear profitability or cash flow yet. Third stage – Major expansion for the company with rapid sales growth, at breakeven or positive profit levels but still private company. Fourth stage – Bridge financing to prepare company for public offering.

5. Entrepreneurship Management Sources of capital Stages of Business Development Funding Contd … C. Acquisition and leveraged buyout financing Traditional Acquisitions – Assuming ownership and control of another company. Leveraged buyout – Management of the company acquiring company control by buying out the present owners. Going private – Some of the owners/ managers of a company buying all the outstanding stock, making the company privately held again.

6. Entrepreneurship Management Sources of capital Overview of the Venture capital Industry The role of venture capital was instrumental in promoting entrepreneurship and industrialisation of the United States. Before World War II, venture investment activity was a monopoly of wealthy individuals, investment banking syndicates and few family organisations with a professional manager. The first step toward institutionalising the venture capital industry was in 1946 with the formation of the American R&D Corpn.in Boston with a small pool of capital from individuals and institutions put together by General Georges Doriot to make active investments in selected emerging businesses such as Digital Equipment Corpn.

7. Entrepreneurship Management Sources of capital The next major development, the Small business Investment Company Act of 1958, married private capital with government funds to be used by professionally managed small business investment companies(SBIC firms) to infuse capital into start- up and growing small businesses. With tax advantages, government funds for leverage, and a private capital company, SBIC’s were the start of the now formal venture capital industry. Another type of venture capital firm also developed during the time was the venture capital division of major corporations, usually associated with banks and insurance companies, although companies such as 3M, Monsento and Xerox also have one.

8. Entrepreneurship Management Sources of capital Venture Capital Innovative and highly technical ventures High growth and high risk ventures Sunrise or Emerging ventures Phased disbursements Management support Multi skill support

9. Entrepreneurship Management Sources of capital The main features of Venture capital financing Long term source of investment Equity participation thro’ direct purchase of shares or convertible securities Participation in the management of entrepreneur’s business Also provide services of marketing, technology, organisational structure Enters when access of funds from conventional sources become difficult The business must have high potential of growth, not averse to the risk contd ……

10. Entrepreneurship Management Sources of capital The main features of Venture capital financing Contd …… Flow of funds in a phased manner and can be in a form of debt also in initial stage Not a permanent equity holder Ensures the exit route in the appropriate manner - ensuring the interest of the entrepreneur as well

11. Entrepreneurship Management Sources of capital Venture Capital Process The preliminary screening Due dilligence Negotiations Signing of MOU Flow of funds Exit

12. Entrepreneurship Management Sources of capital Guidelines for dealing with Venture Capitalists Select the venture capitalist carefully Do not work several deals in parallel Approach venture capitalist thro’ an intermediary Avoid professional help from lawyers, accountants in the initial stage Be very careful of what is projected or promised. The Business plan should reflect all. SWOT Ensure and negotiate for smooth entry and exit route Establish a high degree of trust Synergy – Win / Win situation

13. Entrepreneurship Management Sources of capital THANK YOU