venture capitalist ppt

VENTURE CAPITAL -Idea to IPO

The greatest difficulty in the world is not for people to accept new

ideas, but to make them forget old ideas.--Tom Peters

04/08/2023 Indian Institute Of Planning & Management

IS IT JUST THE STORY OF THE MAN WITH

THE idea AND THE MAN WITH THE MONEY ?

WHAT IS VC FUNDING?

2

… IT IS THE BUSINESS OF EMPLOYING CAPITAL ‘PATIENTLY’ TO ‘MAXIMISE RETURNS’ WHILE

MANAGING RISKS IN A RELATIVELY HIGH-RISK VENTURE

VERSUS

SIMPLY ‘MINIMISING RISKS’ FOR A SURER FIXED RETURN

VC FUNDING IS

04/08/2023 Indian Institute Of Planning & Management 3

Venture capitalists are typically very selective in deciding what to invest in; as a rule of thumb, a fund may invest in one of four hundred opportunities presented to it. Funds are most interested in ventures with exceptionally high growth potential, as only such opportunities are likely capable of providing the financial returns and successful exit event within the required timeframe (typically 3-7 years) that venture capitalists expect.

Cont….


The concept was introduced in India in 1987It 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.

Development In India


Promoter’s Integrity, Relevant Experience, Drive Level.Uniqueness Of Their IDEAFocus On/ Commitment To Their IDEAHigh Entry BarriersCompetitive AdvantagesGood Market Size & Growth RatesAcceptable Geographic LocationAppropriate Stage Of Investment

VC Mainly Looks at?


Writing a business plan is a process in which the entrepreneur is forced to think about all aspects of the businessWrite it yourselfFocus onThe people, the opportunity / business model, Risk and rewardWrite down the exit options (the investor wants to get money out of it as well) but don’t focus too much on the “IPO within 3 years”

Cont….


Depending on your type business, the venture capital firm you approach will differ. For instance, if you're an internet [start-up 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?

Types of Venture Capital Firms


Targeting specific types of firms will yield the best results when seeking VC financing. The National Venture Capital Association segments dozens of VC firms into ways that might assist you in your search.

It is important to note that many VC firms have diverse portfolios with a range of clients. If this is the case, finding gaps in their portfolio is one strategy that might succeed.

Cont….


The Investment Process


Deal Flow Generation

Assessment & Selection

Deal making

Monitoring

Exit

Personal savings -- one can fund the business from personal savings or by raising personal loans offering one’s personal property as collateral security. Bootstrapping – One can start the business venture with the limited available funds, and then use the profits to further develop the business. Bank loan – Banks may come forward to lend money if the account behaviour is healthy.

Revenue Stream For VC


All the above three options are meant for wealthy individuals who may not strictly need external sources for business funding. There is a fourth way to raise money to start a business and this is known as venture capital. Venture capital is particularly suited if the intending entrepreneur needs large sums of money to meet big start-up expenses and has a quick business growth plans.

Cont…


Venture capital investment firms raise and pool together money from institutional investors and other high net worth individuals. These venture capital funding firms quite often provide managerial and technical expertise apart from funds for the business.The venture capital company will then invest the pooled money in a number of business enterprises and then expect that all of the investments it has made will be paid back over a pre-determined number of years.

Cont….


There are typically six stages of financing offered in Venture Capital, that roughly correspond to these stages of a company's development.

1.Seed Money: Low level financing needed to prove a new idea (Often provided by "angel investors")

Initial capital for a start-up ventureProvided by friends and family, informal investors or by seed venture capital firms Often used to develop a business concept before a company is really started

Trends In VC Funding


http://en.wikipedia.org/wiki/Angel_investor

2. Start-up: Early stage firms that need funding for expenses associated with marketing and product development

3. First-Round: Early sales and manufacturing funds Capital for a venture that has successfully passed the initial start-up phase. The business plan has been written and the product is under development.Usually provided by informal investors and / or seed venture capital firms Often used to further develop the product or service and in some cases to attract the first customers

Cont....


4. Second-Round: Working capital for early stage companies that are selling product, but not yet turning a profit Usually provided by venture capital firms and (investment) banks Often used for marketing purposes and growth of the company

Cont….


5. Third-Round: Also called Mezzanine financing, this is expansion money for a newly profitable company Sometimes another round of financing is necessary before being profitable. In other cases the money is used by profitable companies to be able to expand more aggressively than they could do otherwise.

Cont….


http://en.wikipedia.org/wiki/Mezzanine_financing

6. Fourth-Round: Also called bridge financing, 4th round is intended to finance the "going public" process

SubsidiesDependent on the laws and regulations in a specific country, (start-up) companies can often apply for subsidy by the public sector

LoansIn some cases banks are willing to provide loans to start-up companies, e.g. for financing working capital

Cont….


Given the complexities of venture financial statement analysis, determining when a “trend” indicates a “problem requiring action” can be quite complicated. As a result, VCs rely upon a combination of “past experience” and “pattern matching” to determine how best to interpret and respond to different situations.Past Experience. In analyzing any one particular company, VCs rely heavily upon prior experience. One venture investor characterized monitoring portfolio companies in a similar fashion to looking at art. “You look at a lot of art, some is good, some is ok and some is bad. At some point, after seeing enough art, something inside clicks and you start to appreciate why certain art is good and more importantly why certain art is bad”.

Venture Capital Decision Making


Pattern Matching. In addition to relying upon past experience and “sense”, venture investors rely heavily upon pattern matching. Pattern matching has been described by one VC as “putting the different tiles together to see the whole picture.” Examples of different “tiles” VCs would consider in forming an opinion would include:Activity within the portfolio can help an investor better understand whether or not an issue, facing one company is affecting other ones of a similar stage or sector.Performance of comparable companies outside of the portfolio can also be an indicator of whether or not a particular issue is unique to the company or affecting an entire segment.

Cont….


Presented By:

B.Vigneshwar A.Jashwanth T.Raghu Prem

V.PrathikV.SrinivasA.Kiran Kumar

04/08/2023 Indian Institute Of Planning & Management

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THANK YOU

S. Manoj

venture capitalist ppt

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