Venture Capital

– An Introduction

Arvind Kohli
Company Secretary
E.mail: arvindkohli@gmail.com
Mobile: 9811026619
 Sources of Funding
 Banks & Financial Institutions
o Project Financing
o Term Loans / C.C. Limit
 Debt Borrowings
 Equity

o Promoters
o Friends, Relatives & Business Associates
 Private Equity
o Venture Capital
o Angel Investors
o Bootstrapping
 Venture Capital
A type of Private Equity Capital typically provided by
professionals, institutionally backed outside investors to
new growth business.
Venture Capital is the process by which investor’s fund

the early stage, more risk oriented business endeavours.

A venture Capital funding arrangement will typically

entail relinquishing same level of ownership and control of

the business.
Generally made as cash in exchange of shares in the

investee Company.
 Structure of Venture Capital Fund
 Generally a partnership firm.
 Pooled funds in the form of commitment for a common
objective / area.
 Generally for 10 years with a clause of extension.
 Average exposure 3 to 7 years.
 Beyond 5 years Venture Capitalist looks for change in
portfolio to cut exposure to Management & Marketing risk of
an individual / product.
 Investors have a fixed commitment in the fund which is
“called down” by Venture Capitalist over time as the fund
makes the investment.
 Substantial penalties to limited partners for not honouring a
capital call.
 Venture Capital Fund Operations
 General Partners / Venture Capitalist
 Limited Partners / Investors
 Venture Partners / Entrepreneurs in Residence (EIR)
 Angel Investors
 Bootstrapping
 Six Factors for Investing

 Size and Risk of Opportunity.

 Quality of Entrepreneur.
 Uniqueness of Technology.
 Condition of Market.
 Strength and speed of Competitors .
 Equity Portfolio Mix.
 Questions in Venture Capitalist’s Mind
 Is this the Right Team ?
 What’s the Entrepreneur’s motivation ?
 Is this a billion dollar opportunity ?
 Is it a Game changer ?
 How Competitive is the space ?
 How defensible is the product ?
 How much is this thing going to take ?
 How long to maximise value and exit ?
 Why Venture Capitalist’s says 'NO'
 Lack of an experienced and complete management
team.
 The company did not fit their investment criteria.
 The size of the market, the company is in, is too small.
 No competitive Advantage / Non compelling
technology.
 Strategic Weaknesses.
 The industry has no barriers to entry for competitors.
 The risk is too high relative to projected returns.
 Qualities of recipient of Venture Capital
 Strong Management Team.
 Attractive market opportunity.
 Ability to be first in the market place.
 A Proprietary technology.
 A well thought out business plan.
 Where Venture Capitalist’s are Hunting
 U.S., China, India & Israel.
 Start-up Venture Capital Hot Zones :
o Wireless / Internet / Biotech / Pharma / Telecom / Software / Reality
 Universities.
 Entrepreneur Networks – SME
 R&D Centres
 Recent Trends
 Through 3rd Quarter of 2006 $ 19.20 billion was
invested by Venture Capitalist’s in 2533 deals in US.
 China – dedicated funds raised $ 4 million in
committed capital by 2005.
 Venture Capitalist’s invested $ 508 million across 92
deals in India in 2006 up from $ 268 million in 44
deals in 2005.
 In 2005 capital raised in European region was more
than € 60 million of which € 12.6 million was
specifically for Venture Capital investment
Thank You