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investee companies who are recipients of risk capital on another hand. --- the investment by professional investors of long-term, risk equity finance where the primary reward is the eventual gain, rather than interest income or dividend yield. -- Wright & Robbie (1997) --- the concept thrives on investors desire to assume higher degree of risk in anticipation of a higher investment returns. -- Hill & Power (2001)
INVESTMENT DECISION STAGE consists of activities such as evaluations of investment deals received through screening, valuation, contracting issues and financial structuring. According to Tyebjee and Bruno, (1984), activities at this stage require more time and industry experience to reduce the risk associated with VC investments. MONITORING AND VALUR ADDING STAGE relates to activities and programs that ensure that the investee firms business operations are run in line with the investment objective and the activity path set out by the VC firm. CRAFTING AND EXECUTION OF EXIT STRATEGIES are done at the final stage to ensure that venture capitalists conveniently utilize available exit options such as issuing of initial public offering (IPOs) to harvest their investment in the investee firm(see figure 3-2). Crafting and executing successful exit strategies requires meticulous investment planning before exit date.
Four key elements in financing of ventures which are studied in depth by the venture capitalists. These are :
1. Management: The strength, expertise & unity of the key people on the board bring significant credibility to the company. The members are to be mature, experienced possessing working knowledge of business and capable of taking potentially high risks. 2. Potential for Capital Gain: An above average rate of return of about 30 - 40% is required by venture capitalists. The rate of return also depends upon the stage of the business cycle where funds are being deployed. Earlier the stage, higher is the risk and hence the return. 3. Realistic Financial Requirement and Projections: The venture capitalist requires a realistic view about the present health of the organization as well as future projections regarding scope, nature and performance of the company in terms of scale of operations, operating profit and further costs related to product development through Research & Development. 4. Owner's Financial Stake: The financial resources owned & committed by the entrepreneur/ owner in the business including the funds invested by family, friends and relatives play a very important role in increasing the viability of the business.
On the investing side, entrepreneurs are increasingly becoming savvier and would want to share value only if they see real value from the VC funds more than just the money itself. Therefore, the Funds bringing additional value would be able to generate better returns for their investors. On the regulatory side, SEBI has recently come up with new guidelines for the domestic Venture Capital Funds. These guidelines pose new challenges as well offer opportunities to many existing and new Funds in the market. The real benefits of these guidelines are yet to be seen by the Funds.
Conclusion:
The world is becoming increasingly competitive. Companies are required to be super efficient with respect to cost, productivity, labor efficiency, technical back up, flexibility to consumer demand, adaptability and foresightedness. There is an impending demand for highly cost effective, quality products and hence the need for right access to valuable human expertise to guide and monitor along with the necessary funds for financing the new projects. The Government of India in an attempt to bring the nation at par and above the developed nations has been promoting venture capital financing to new, innovative concepts & ideas, liberalizing taxation norms providing tax incentives to venture firms, giving a Philip to the creation of local pools of capital and holding training sessions for the emerging VC investors. There are large sectors of the economy that are ripe for VC investors, like, I.T, Pharmacy, Manufacturing. Telecom, Retail franchises, food processing and many more. The nation awaits for the burgeoning VC business in India in spite of the existing shortcomings in the Indian infrastructure.
NAME:- RAHUL AGARWAL ROLL NO.:- 249 ROOM NO.:- 23 SUBJECT:- EDBA ASSIGNMENT ON:
2. Deal flow Opportunity creating activities (venture base) Recognize and Identify entrepreneurial opportunities
3. Investment decision Screen and evaluate deals Select/ deselect deals Valuate and negotiate structure deals
4. Monitoring/ value adding Strategy development Active board membership Outside expertise Other stake holders, management Contact and access to info, people, institutions Staging and syndicating investment