financial services

Definition
Services and products provided to consumers and businesses by financial
institutions such as banks, insurance companies, brokerage firms, consumer finance
companies, and investment companies all of which comprise the financial services
industry.

Financial Services may be simply defined as services offered by financial and

banking institutions like loan, insurance, etc.
Features of Financial Services

Financial services are customer oriented

Financial services are Intangible
They are perishable in nature and cannot be stored
They are dynamic in nature as a financial service varies with the changing
requirements of the customer and the socio-economic environment. must
be dynamic socio economic changes, disposable income

They are proactive in nature and help to visualize the expectations of the
market
They acts as link between the investor and borrower
They aid in distribution of risks

Financial services cover a wide range of activities. They can be broadly

classified into two, namely :
i.

Traditional. Activities

ii.

Modern activities.

Traditional Activities
Traditionally, the financial intermediaries have been rendering a wide range of
services encompassing both capital and money market activities. They can be
grouped under two heads, viz.
a.

Fund based activities and

h.

Non-fund based activities.

Fund based activities : The traditional services which come

under fund based activities are the following :
i.
Underwriting or investment in shares, debentures, bonds, etc. of new issues
(primary market activities).

ii. Dealing in secondary market activities.

iii. Participating in money market instruments like commercial
papers, certificate of deposits, treasury bills, discounting of bills etc .
Involving in equipment leasing, hire purchase, venture capital, seed capital,
v.

Dealing in foreign exchange market activities. Non fund based activities

. Non fund based activities

Financial intermediaries provide services on the basis of non-fund activities also.
This can be called 'fee based' activity. Today customers, whether individual or
corporate, are not satisfied with mere provisions of finance. They expect more from
financial services companies. Hence a wide variety of services, are being provided
under this head. They include :

i.
Managing die capital issue i.e. management of pre-issue and post-issue
activities relating to the capital issue in accordance with the SEBI guidelines and
thus enabling the promoters to market their issue.
ii. Making arrangements for the placement of capital and debt instruments with
investment institutions.

iii. Arrangement of funds from financial institutions for the clients' project cost or
his working capital requirements.
iv, Assisting in the process of getting all Government and '

other clearances.

Modern Activities
Beside the above traditional services, the financial intermediaries render
innumerable services in recent times. Most of them are in the nature of non-fund
based activity. In view of the importance, these activities have been in brief under
the head 'New financial products and services'. However, some of the modern
services provided by them are given in brief hereunder.

i.

Rendering project advisory services right from the

preparation of the project report rill the raising of funds for starting the project with
necessary Government approvals.
ii.

Planning for M&A and assisting for their smooth carry out.

iii. Guiding corporate customers in capital restructuring

iv. Acting as trustees to the debenture holders.

v. Recommending suitable changes in the management structure and
management style with a view to achieving better results.
vi. Structuring the financial collaborations / joint ventures by identifying suitable
joint venture partners and preparing joint venture agreements,
Rehabilitating and restructuring sick companies through appropriate scheme of
reconstruction and facilitating the implementation of the scheme.

viii. Hedging of risks due to exchange rate risk, interest rate risk, economic risk, and
political risk by using swaps and other derivative products.
Managing [In- portfolio of large Public Sector Corporations.
x. Undertaking risk management services like insurance services, buy-hack
options etc.

. Advising the clients on the questions of selecting the best source of funds taking
into consideration the quantum of funds required, their cost, lending period etc.

xii, guiding the clients in the minimization of the cost of debt and in the
determination of the optimum debt-equity mix.
Undertaking services relating to the capital market, such as
:-..

Clearing services

b.

Registration and transfers,

c.

Safe custody of securities

d.

Collection of income on securities

xiv. Promoting credit rating agencies for the purpose of rating companies which
want to go public by the issue of debt instrument

Sources of Revenue
There arc two categories of sources of income for a financial services company, namely :
(i) Fund based and (ii) Fee based.
Fund based income
Fund based income comes mainly from interest spread (the difference between the
interest earned and interest paid), lease rentals, income from investments in capital
market and real estate. On the other hand, fee based income has its sources in merchant
banking, advisory services, custodial services, loan syndication, etc. In fact, a major part
of the income is earned through fund-based activities. At the same time, it involves a large
share of expenditure also in the form of interest and brokerage. In recent times, a number
of private financial companies have started accepting deposits by offering a very high rate
of interest. When the cost of deposit resources goes up, tin" (ending rate should also go
up. It means that such companies have to compromise the quality of its investments.
Fee based income
Fee based income, on the other hand, does not involve much risk. But, it requires a lot of
expertise on the part of a financial company to offer such fee-based services.
Causes For Financial services Innovation
Low profitability : The profitability of the major FI, namely (he banks has
been very much affected in recent times. There is a decline, in the
profitability of traditional banking products. So, (hey have been compelled to
seek out new products which may fetch high returns.
ii. Keen competition : The entry of many FIs in the financial sector has led
to severe competition among them. This keen competition has paved the

way for the entry of varied nature of innovative financial products so ns to

meet the varied requirements of the investors.

. Economic Liberalization : Reform of the Financial sector constitutes the

most important component of India's programme towards economic
liberalization. The recent economic liberalization measures have opened the
door foreign competitors to enter into our domestic market. Deregulation in
the form of elimination of exchange controls and interest rate ceilings have
made the market more competitive. Innovation has become a must for
survival.
iv. Improved communication technology : The
communication technology has become so advanced that even the world's
issuers can be linked with the investors i the global financial market without
any difficulty by mean of offering so many options and opportunities.

Customer Service : Now a days, the customer's

expectations are very great. They want newer products at lower cost or at
lower credit risk to replace the existing one To meet this increased customer
sophistication, the financial intermediaries are constantly undertaking
research in order to invent a new product which may suit to the requirement
of the investing public.
vi. Global impact : Many of the providers and users of capital have changed
their roles all over the world. FI have come out of their traditional approach
and they arc ready to assume more credit risks.

.Investor Awareness ; With a growing awareness amongst the investing

public, there has been a distinct shift from investing the savings in physical
assets like gold, silver, land etc. to financial assets like shares, debentures,
mutual funds, etc. Again, within the financial assets, they go from 'risk free
bank deposits to risky investments in shares. To meet the growing awareness
of the public, innovations has become the need of the hour.

financial services sector by offering a variety

new products.
Merchant Banking
i
: A merchant hanker is a financial intermediary who helps to
transfer capital from those who possess it to those who need it.
Merchant banking includes a wide range of activities such as
management of customer securities, portfolio management,
project counseling and appraisal, underwriting of shares and
debentures, loan syndication, acting as banker for the refund
orders, handling interest and dividend warrants etc. Thus, a
merchant hanker renders a host of services lo corporate, and thus
promote industrial development in the country.
Loan Syndication
This is more or less similar to consortium financing. But this work
is taken up by the merchant banker as a lead manager. It refers to
a loan arranged by a bank called lead manager for a borrower
who is usually a large corporate customer or a government
department. It also enables the members of the syndicate to
share the credit risk associated with a particular loan among
themselves.
. Leasing ;
; A lease is an agreement under which a company or a firm
acquires a right to make use of a capital asset like machinery, on
payment of a prescribed fee called 'rental charges'. In countries
like USA, the UK and Japan, equipment leasing is very popular and
nearly 25% of plant and equipment is being financed by leasing
companies. In India also, many financial companies have started
equipment leasing business.
Mutual Funds :

A mutual fund refers to a fund raised by a financial service

company by pooling the savings of the public. It is invested in a
diversified portfolio with a view to spreading and minimizing the
risk The fund provides investment avenues for small investors
who cannot participate in the equities of big companies. It
ensures low-risk, steady returns, high liquidity- and better
capitalization in the long run.
Factoring
Factoring refers to the process of managing the sales register of
a client by a financial services company. The entire responsibility
of collecting the book debts passes on to the factor.
Forfeiting
Forfeiting is a technique by which a forfeiter (financing agency)
discounts an export bill and pays ready cash to the exporter who
can concentrate on the export front without bothering about
collection of export bills
Venture Capital
A venture capital is another method of financing in form of equity
participation.
Custodial Services
Under this a financial intermediary mainly provides services to
clients, for a prescribed fee, like safe keeping of financial
securities and collection of interest and dividends.
Corporate advisory services
: Financial intermediaries particularly hanks have setup
specialized branches for this. As new avenues of finance like
Euro loans, GDRs etc. arc available to corporate customers, this
service is of immense help to the customers.
.

Securitization

Securitization is a technique whereby a financial company

converts its ill-liquid, non-negotiable and high value financial
assets into securities of small value which are made tradable and
transferable.
. Derivative Security
A derivative security is a security whose value depends upon the
values of other basic variable backing the security. In most cases,
these variables are nothing but the prices of traded securities.

Module 2:
Module 2:
merchant bank meaning :
A merchant bank is a financial institution providing capital to companies in
the form of share ownership instead of loans. A merchant bank also provides
advisory on corporate matters to the firms in which they invest. In the United
Kingdom, the historical term "merchant bank" refers to an investment bank.
According to Coax. Merchant banking is defined as" merchant banks are the
financial institution providing specialist services which generally include
acceptance of bills of exchange, corporate finance, portfolio management
and other banking services.

Origin
In Britain started in the 13th century when a few private firms engaged
themselves in foreign trade and finance.
Based on the British model Dutch and Scottish traders started
merchant banking.
In USA merchant banking was developed by the European bankers.
West Germany developed close link with the commercial banks thus
offering variety of services to customers.

In 1972 merchant banking practice was started in South Africa

THE GROWTH OF MERCHANT BANKING IN INDIA

Formal merchant activity in India was originated in 1969 with the merchant
banking division setup by Grind Lays Bank, the largest foreign bank in the
country. the main service offered at that time to the corporate enterprises by
the merchant banks included the management of public issues and some
aspects of financial consultancy. Following Grind Lays Bank ,Citibank setup
its merchant banking division in 1970. banking commission in 1972,that
Indian banks should offer merchant banking services as part of the multiple
services, state bank of India started the merchant banking division in
1972.bank of india and syndicate bank in 1977.bank of baroda started
charted bank mercantile bank in 1978 and united bank of india.

National Grindlays Bank opened its branch in 1967.

SBI floated its merchant banking division in 1972.
Some of the banks which started Merchant banking are Central bank of
India, BOI, syndicate bank, BOB, Standard chartered bank, ICICI, IFCI
and IDBI etc.

Functions
Issue Management Services to act as Book Running Lead Manager/Lead Manager for
the IPOs/FPOs/Right issues/Debt issues

Project appraisal;
Corporate Advisory Services;
Underwriting of equity issues;
Banker to the Issue/Paying Banker;
Refund Banker;
Monitoring Agency;
Debenture Trustee;

Services of Merchant Bankers

Corporate counseling;
Project Counseling;
Loan syndication;
Management of capital issues;
Advisory services to mergers and takeovers;
Consultancy to sick industrial units;
Corporate Advisory services;
Portfolio management;
Leasing; and
Issue Management.
Problems of Merchant Bankers
As per SEBI guidelines, Merchant Bankers are authorized to undertake only issue
related activities, which restrict their scope of activities.
Issuing companies do not adhere to the schedule in allotment and refund of
application money thereby creating trouble for the image of these bankers at the
investors.
Yet merchant banking is vast but should develop adequate expertise to provide a
full range of merchant banking services

Guidelines for the Merchant Bankers

Should have qualification in finance, law or business
management;

Should have adequate office space, equipment and manpower;

 At least 2 merchant bank operations qualified persons to be

appointed;

Should be fair in all transactions;

SEBI will supervise the activities of merchant bankers.

SEBI has laid responsibility on merchant banks for the true disclosures and factual
statements made on the prospectus and the authenticity of such statements;
SEBI has the power to suspend or cancel the authorization of merchant bankers in
case of any violation of the guidelines;
Merchant bankers should send quarterly reports on the public issue and rights issue
on hand, the names of the companies, size of the issue, and other details;
Should abide by the code of conduct prescribed by SEBI;
For the issue over Rs. 100 crs, the number of BRLMs should be 4 to 5;
Merchant bankers should make an agreement with corporate bodies about their
mutual rights, liabilities and obligations etc.

MODULE 3:

Hire purchase
Definition of Hire Purchase:
Hire Purchase is defined as an agreement in which the owner of the assets lets
them on hire for regular installments paid by the hirer. The hirer has the option to
purchase and own the asset once all the agreed payments have been made. These
periodic payments also include an interest component paid towards the use of the
asset apart from the price of the asset -ORa system by which one pays for a thing in regular instalments while having the use
of it.

Features and Characteristics of Hire Purchase:

Following are the features of a regular hire purchase transaction:

Rental payments are paid in installments over the period of the agreement.
Each rental payment is considered as a charge for hiring the asset. This
means that, if the hirer defaults on any payment, the seller has all the rights
to take back the assets.

All the required terms and conditions between both the parties involved are
documented in a contract called Hire-Purchase agreement.

The frequency of the installments may be annual, half-yearly, quarterly,

monthly, etc. according to the terms of the agreement.

Assets are instantly delivered to the hirer as soon as the agreement is signed.
If the hirer uses the option to purchase, the assets are passed to him after the
last installment is paid.

If the hirer does not want to own the asset, he can return the assets any time
and is not required to pay any installment that falls due after the return.

However, once the hirer returns the assets, he cannot claim back any
payments already paid as they are the charges towards the hire and use of
the assets.

The hirer cannot pledge, sell or mortgage the assets as he is not the owner of
the assets till the last payment is made.

The hirer, usually, pays a certain amount as an initial deposit while signing
the agreement.

Generally, the hirer can terminate the hire purchase agreement any time
before the ownership rights pass to him
Legal Position of Hire-Purchase Agreement
According to the Act, a hire-purchase agreement means an agreement
under which goods are let on hire and under which the hirer has an option
to purchase them in accordance with the terms of the agreement and
includes an agreement under which:
(i) Possession of goods is delivered by the owner thereof to a person on condition
that such person pays the agreed amount in periodical installments, and

(ii) The property in the goods is to pass to such person on the payment of the last of
such installments, and
(iii) Such person has a right to terminate the agreement at any time before the
property so passesSec. 2(e).
Hire-purchase agreement must be in writing and signed by parties. A surety, if any,
must sign the hire-purchase agreements. The agreement shall be void if the above
requirements have not been complied with Sec. 3.
According to Sec. 4 contents of hire-purchase agreement includes:
(i) the hire-purchase price of the goods to which the agreement relates;
(ii) the cash price of the goods, i.e., the price at which the goods may be purchased
by the hirer for cash;
(iii) the date on which the agreement shall be deemed to have commenced;
(iv) the number of instalments by which the hire-purchase price is to be paid, the
amount of each of those installments and the date, or the mode of determining the
date, upon which it is payable, and the person to whom and the place where it is
payable;
Certain Terms Used in Hire-Purchase Agreement:
(i) Cash Price Instalment:
(ii) Hire-Purchase Price:
(iii) Net Hire-Purchase Charges:
(iv) Net Cash Price:
(v) Down Payment:

LEASING :

Definition: A lease is a form of contract transferring the use or

occupancy of land, space, structure or equipment in consideration
of a payment, usually in form of a rent
STEP INVOLVED IN LEASING TRANSACTION
The steps involved in a leasing transaction are summarised as follows:

1. First, the lessee has to decide the asset required and select the
supplier. Hehas to decide about the design specifications, the price,
warranties, terms of delivery,servicing etc.
2. The lessee, then enters into a lease agreement with the lessor. The
leaseagreement contains the terms and conditions of the lease such
as,
(a) The basic lease period during which the lease is irrecoverable.
(b) The timing and amount of periodical rental payments during the
lease period.
(c) Details of any option to renew the lease or to purchase the asset at
theend of the period.
(d) Details regarding payment of cost of maintenance and repairs,
taxes,insurance and other expenses.
3. After the lease agreement is signed the lessor contacts the
manufacturer andrequests him to supply the asset to the lessee. The
lessor makes payment to themanufacturer after the asset has been
delivered and accepted by the lessee
TYPES OF LEASE
The lease agreement can be classified broadly into four categories:
1. Financial Lease
A financial lease is also known as Capital lease, Long-term lease, Net
lease andClose lease. In a financial lease, the lessee selects the
equipments, settles the riceand terms of sale and arranges with a
leasing company to buy it. He enters into airrevocable and noncancellable contractual agreement with the leasing company.The
lessee uses the equipment exclusively, maintains it, insures and avails
of the after sales service and warranty backing it. He also bears the
risk of obsolescence as itstands committed to pay the rental for the
entire lease period
OPERATING LEASE

An operating lease is also known as Service lease, Short term lease or

Truelease. In this lease, the contractual period between lessor and
lessee is less than thefull expected economic life of equipment. This
means that the lease is for a limited period, may be a month, six
months, a year or few years. The lease is terminable bygiving
stipulated notice as per the agreement. Normally, the lease rentals will
behigher as compared to other leases on account of short period of
primary lease. Therisk of obsolescence is enforced on the lessor who
will also bear the cost of maintenanceand other relevant expenditure.
The lessor also does the services like handling warrantyclaims, paying
taxes, scheduling and performing maintenance and keeping
completerecords lease is suitable for,(i) Computers, copy machines and
other office equipments, vehicles, materialhandling equipments etc.
Which are sensitive to obsolescence and(ii) Where the lessee is
interested in tiding over temporary problem

4.6 LEVERAGE LEASE

A leverage lease is used for financing those assets which require huge
capitaloutlay. The outlay for purchase cost of the asset generally varies
from Rs. 50 lakhsto Rs. 2 crore arid has economic life of 10 years or
more. The leverage lease agreementinvolves three parties, the lessee,
the lessor and the lender. The lessor acquires theassets as per the
terms of the lease agreement but finances only a part of the total.
investment, say 20% to 50%. The balance is provided by a person or a
group of persons in the form of loan to the lessor.

SALE AND LEASE BACK

Under this type of lease, a firm which has an asset sells it to the
leasing companyand gets it back on lease. The asset is generally sold
at its market value. The firmreceives the sale price in cash and gets
the right to use the asset during the lease period. The firm makes
periodical rental payment to the lessor. The title to the assetvests with
the lessor. Most of the lease back agreements are on a net - net

basiswhich means that the lessee pays all maintenance expenses,

property taxes and-insurance. In some cases, the lease agreement
allows the lease to repurchase the property at the termination of lease

CROSS BORDER LEASE

Cross border lease is international leasing and is known as
transnational leasing.It relates to a lease transaction between a lessor
and lessee domiciled in differentcountries and includes exports leasing.
In otherwords the lessor may be of onecountry and the lessee may be
of another country.

INSTALMENT BUYING, HIRE PURCHASE AND LEASING

In instalment buying, the property passes on to the buyer immediately
as soonas the first installment is made. The balance amount is payable
in installments. Under the contract of installment the buyer has no
right to return the goods. In case of default,the seller has the right to
file a suit in the court of law to recover his dues.Hire purchase is an
agreement under which the owner delivers the goods to the buyer who
agrees to.make periodical payment as hire charges. The possession
of goods vests with the hirer but the ownership remains with the seller.
On full paymentof hire charges, the buyer gets the option of
purchasing the goods. On default, theseller can reclaim the goods,
subject to certain provisions of Hire Purchase Act.

In leasing, the entire lease rentals represents a hire charge and it is

treated asexpense and hence tax deductible. Under hire purchase, a
part of installment representscapital payment and hence it is not an
expense. A part of the installment is interest onthe loan which is
considered as revenue expenditure and hence it is tax deductible.In
leasing, rental charges are debited to profit and loss account and the
leasedasset is not shown in the balance sheet of the lessee. As against

this, the hire purchaser capitalises the asset brought under hire
purchaser contract.

Advantages of Lease
The following are the advantages of leasing:
Permit Alternative Use of Funds:

Faster and Cheaper Credit:

Flexibility:
Facilitates Additional Borrowings
Hundred Percent Financing:
No Restrictive Covenants:
DisAdvantages of leasing :

1. Lease is not suitable mode of project finance. This is because rentals

arerepayable soon after entering into lease agreement while in new
projects cash generationsmay start only after a long gestation
period.2. Certain tax benefits/incentives such as subsidy may not be
available on leased

equipment.
3. The value of real assets such as land and building may increase
during lease period. In such a case the lessee loses the advantage of a
potential capital gain.
4. The cost of financing is generally higher than that of debt financing.

5. A manufacturer who wants to discontinue a particular line of

business will notin a position to terminate the contract except by
paying heavy penalties. If it is a ownedasset the manufacturer can sell
the equipment at his will.
6. If the lessee is not able to pay rentals regularly, the lessor would
suffer a loss particularly when the asset is a sophisticated one and less
liquid.
7. In case of lease agreement, it is lessor who has purchased the asset
from thesupplier and notthe lessee. Hence, the lessee by himself is not
entitled to any protectionin case the supplier commits breach of
warranties in respect of the leased assets.
8. In the absence of exclusive laws dealing with the lease transaction,
several problems crop up between lessor and lessee resulting in
unnecessary complicationsand avoidable tension.
LEGAL ASPECTS OF LEASING
As there is no separate statute for equipment leasing in India, the
provisionsrelating to bailment in the Indian Contract Act govern
equipment leasing agreementsas well Section 148 of the Indian
Contract Act defines bailment as:"The delivery of goods by one person
to another, for some purpose, upon acontract that they shall, when the
purpose is accomplished, be returned or otherwisedisposed off
according to the directions of the person delivering them. The
persondelivering the goods is called the' bailor' and the person to
whom they are deliveredis called the 'bailee".Since an equipment lease
transaction is regarded as a contract of bailment, theobligations of the
kessor and the lessee are similar to those of the bailor and the
bailee(other than those expressly specified in the least contract) as
defined by the provisionsof sections 150 and 168 of the Indian Contract
Act. Essentially these provisions havethe following implications for the
lessor and the lessee.
1. The lessor has the duty to deliver the asset to the lessee, to legally
authorisethe lessee to use the asset, and to leave the asset in peaceful
possession of the lesseeduring the currency of the agreement.

2. The lessee has the obligation to pay the lease rentals as specified in
the leaseagreement, to protect the lessor's title, to take reasonable
care of the asset, and toreturn the leased asset on the expiry of the
lease period.
4.12 CONTENTS OF A LEASE AGREEMENT
The lease agreement specifies the legal rights and obligations of the
lessor andthe lessee. It typically contains terms relating to the
following:
1. Description of the lessor, the lessee, and the equipment.
2. Amount, time, and place of lease rental payments.
3. Time and place of equipment delivery.
4. Lessee's responsibility for taking delivery and possession of the
leasedequipment. 5. Lessee's responsibility for maintenance, repairs,
registration, etc. and thelessor's right in case of default by the lessee.
6. Lessee's right to enjoy the benefits of the warranties provided by the
equipmentmanufacturer/supplier.
7. Insurance to be taken by the lessee on behalf of the lessor.
8. Variation in lease rentals if there is a change in certain external
factors like bank interest rates, depreciation rates, and fiscal
incentives.
9. Option of lease renewal for the lessee.
10. Return of equipment on expiry of the lease period.
11. Arbitration procedure in the event of disput

SALES TAX PROVISIONS PERTAINING TO LEASING

The major sales tax provisions relevant for leasinq are as follows:1.
The lessor is not entitled for the concessional rate of central sales tax
becausethe asset purchased for leasing is meant neither for resale nor
for use inmanufacture. (It may be noted that if a firm buys an asset for
resale or for usein manufacture it is entitled for the confessional rate of

sales tax).2. The 46th Amendment Act has brought lease transitions
under the purviewof 'sale' and has empowered the central and state
government to levy salestax on lease transactions. While the Central
Sales Tax Act has yet to beamended in this respect, several state
governments have amended their sales tax laws to impose sales tax
on lease transaction

MODULE 4 :

Venture capital is a type of funding for a new or growing business. It usually

comes from venture capital firms that specialize in building high risk financial
portfolios. With venture capital, the venture capital firm gives funding to the
startup company in exchange for equity in the startup.

Features and importance:

(1) Highly risky :
(2) High return :
(3) Moderate the financial burden of the startups :
(4) Chance of getting finance based on real time needs :
(5) In addition to capital, venture capital provides valuable information, resources,
technical assistance, etc., to make a business successful.
(6)New innovative projects are financed through venture capital which generally
offers high profitability in long run.

Process of Venture Capital Financing:

6 Main Steps

This article throws light upon the six steps involved in the process of
venture capital financing. The steps are:
1. Deal Origination :Deal Origination:
Venture capital financing begins with origination of a deal. For venture capital
business, stream of deals is necessary. There may be various sources of origination
of deals. One such source is referral system in which deals are referred to venture
capitalists by their parent organizations, trade partners, industry association,
friends, etc.

2. Screening :Venture capitalist in his endeavor to choose the best ventures first of
all undertakes preliminary scrutiny of all projects on the basis of certain broad
criteria, such as technology or product, market scope, size of investment,
geographical location and stage of financing.
3. Evaluation :After a proposal has passed the preliminary screening, a detailed
evaluation of the proposal takes place. A detailed study of project profile, track
record of the entrepreneur, market potential, technological feasibility future
turnover, profitability, etc. is undertaken.
4. Deal Negotiation :Once the venture is found viable, the venture capitalist
negotiates the terms of the deal with the entrepreneur. This it does so as to protect
its interest. Terms of the deal include amount, form and price of the investment.
5. Post Investment Activity :Once the deal is financed and the venture begins
working, the venture capitalist associates himself with the enterprise as a partner
and collaborator in order to ensure that the enterprise is operating as per the plan.
6. Exit Plan. :The last stage of venture capital financing is the exit to realise the
investment so as to make a profit/minimize losses. The venture capitalist should
make exit plan, determining precise timing of exit that would depend on an a
myriad of factors, such as nature of the venture, the extent and type of financial
stake, the state of actual and potential competition, market conditions, etc.