STARTING A BUSINESS

SOLE PROPREITORSHIP

PARTNERSHIP

PRIVATE LIMITED COMPANY

PUBLIC LIMITED COMPANY

FINANCING FOR THE BUSINESS

ANGEL INVESTOR• Invest money in seed,

startup and early stage companies

• Invest time in Entrepreneurs and their companies

• Business acumen• Mentoring and

coaching• Serve on boards• Make business

introductions

ANGEL INVESTOR

• Often successful, exited entrepreneurs or retired business persons – active investors

• Accredited Investors• Angels invest their

own money

VENTURE CAPITAL

• Money provided by investors to start-up firms and small businesses with perceived long-term growth potential.

• This is a very important source of funding for start-ups 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.

• Success Rate is around 10%

VENTURE CAPITAL

• Venture capital can also include managerial and technical expertise.

• Most venture capital comes from a group of wealthy investors, investment banks and other financial institutions that pool such investments or partnerships.

• This form of raising capital is popular among new companies or ventures with limited operating history, which cannot raise funds by issuing debt.

• The downside for entrepreneurs is that venture capitalists usually get a say in company decisions, in addition to a portion of the equity.

PRIVATE EQUITY

• Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity.

• Capital for private equity is raised from retail and institutional investors, and can be used to fund new technologies, expand working capital within an owned company, make acquisitions, or to strengthen a balance sheet.

PRIVATE EQUITY

• The majority of private equity consists of institutional investors and accredited investors who can commit large sums of money for long periods of time.

• Private equity investments often demand long holding periods to allow for a turnaround of a distressed company or a liquidity event such as an IPO or sale to a public company.

SHARES/EQUITY

SHARESTypes

Authorised Share Capital Authorised share capital is the number

of ordinary shares capital that a firm can raise without further

shareholder approval.

Issued Capital The portion of the authorised capital offered by the

company to the investors is the issued capital.

Subscribed Share Capital Subscribed share capital is the number

of share (capital) outstanding.

Paid-up Capital The actual amount paid by the shareholders is the

paid-up capital.

Par (face) Value Par (face) value is a value arbitrarily placed on the

shares.

FEATURES OF SHARES

Residual claim to income

Residual claim on assets

Right to control

Pre-emptive rights

Limited liability.

ISSUE OF SHARES

IPO

FPO

RIGHTS ISSUE

PREFERENCE SHARES

QIB

IMPORTANT POINTS IN ISSUE OF SHARES

BOOKBUILDING

SEBI

MERCHANT BANKERS

STOCK EXCHANGES

DEBT

FEATURES OF TERM LOANS

MATURITY

NEGOTIATED

SECURITY / COLLATERAL

COVENANTS

TYPES OF COVENANTS

• ASSET RELATED

• LIBILITY RELATED

• CASH FLOW RELATED

• CONTROL RELATEDNEGATIVE

• PROVIDING INFORMATION

• MAINTAINENCE

• SINKING FUNDPOSITIVE

FEATURES OF BOND / DEBENTURE

Attributes

As a long-term source of borrowing, debentures have some

contrasting features compared to equities .

Trust Indenture When a debenture is sold to investing public, a trustee

is appointed through an indenture/trust deed.

Trust (bond) indenture is a complex and lengthy legal document

stating the conditions under which a bond has been issued.

Trustee is a bank/financial institution/insurance company/ firm of

attorneys that acts as the third party to a bond/debenture indenture to

ensure that the issue does not default on its contractual responsibility

to the bond/ debentureholders.

Interest The debentures carry a fixed (coupon) rate of interest, the

payment of which is legally binding/enforceable. The debenture

interest is tax-deductible and is payable annually/semi-

annually/quarterly.

IMPORTANT POINTS ABOUT BONDS / DEBENTURE

MATURITY

SINKING FUND

CALL / PUT OPTION

SECURITY

CONVERTIBILITY

CREDIT RATING

CLAIM ON INCOME AND ASSETS

INNOVATIVE DEBT INSTRUMENTS

ZERO COUPON BONDS

DEEP DISCOUNT BONDS

SECURED PREMIUM NOTES

FLOATING RATE BOND

CALL / PUT BONDS

FCCB