Women Entrepreneurs: Concept and Functions of Women Entrepreneurs:

Concept:
Women entrepreneur may be defined as a woman or group of women who initiate, organize, and run a business
enterprise. In terms of Schumpeterian concept of innovative entrepreneurs, women who innovate, imitate or
adopt a business activity are called women entrepreneurs. Kamal Singh who is a woman entrepreneur from
Rajasthan, has defined woman entrepreneur as a confident, innovative and creative woman capable of
achieving self-economic independence individually or in collaboration, generates employment opportunities for
others through initiating, establishing and running the enterprise by keeping pace with her personal, family and
social life.
The Government of India has defined women entrepreneurs based on women participation in equity and
employment of a business enterprise. Accordingly, the Government of India (GOI2006) has defined women
entrepreneur as an enterprise owned and controlled by a women having a minimum financial interest of 51 per
cent of the capital and giving at least 51 per cent of the employment generated in the enterprise to women.
However, this definition is subject to criticism mainly on the condition of employing more than 50 per cent
women workers in the enterprises owned and run by the women.
In nutshell, women entrepreneurs are those women who think of a business enterprise, initiate it, organize and
combine the factors of production, operate the enterprise and undertake risks and handle economic uncertainty
involved in running a business enterprise.
functions of Women Entrepreneurs:
As an entrepreneur, a woman entrepreneur has also to perform all the functions involved in establishing an
enterprise. These include idea generation and screening, determination of objectives, project preparation,
product analysis, and determination of forms of business organization, completion of promotional formalities,
raising funds, procuring men, machine and materials, and operation of business.
Frederick Harbison (1956) has enumerated the following five functions of a woman entrepreneur:
1. Exploration of the prospects of starting a new business enterprise.
2. Undertaking of risks and the handling of economic uncertainties involved in business.
3. Introduction of innovations or imitation of innovations.
4. Coordination, administration and control.
5. Supervision and leadership.
Present challenges: Obstacles specific to starting new firms
External finance and sex discrimination.
Gender inequality
Family support
Financial
limited mobility
Cultural constraint/issues
access to information and networks, etc.

In general, women have lower personal financial assets than men. This means that for a given opportunity and
equally capable individual, women must secure additional resources compared to men in order to exploit the

opportunity because they control less capital. A specific solution for solving womens difficulties for obtaining
financing has been microfinancing. Microfinance is a financial institution that has become exceptionally
popular, especially in developing economies.
Obstacles specific to managing a small firm:
Studies on women entrepreneurs show that women have to cope with stereotypical attitudes towards them on a
daily basis. Business relationsfrom customers to suppliers and banksconstantly remind the entrepreneur
that she is different, sometimes in a positive way such as by praising her for being a successful entrepreneur
even though she is a woman. Employees tend to mix the perceptions of the manager with their images of female
role models, leading to mixed expectations on the woman manager to be a manager as well as a mother. The
workload associated with being a small business manager is also not easily combined with taking care of
children and a family. However, even if the revenues are somewhat smaller, women entrepreneurs feel more in
control and happier with their situation than if they worked as an employee . Women entrepreneurs often face
gender-based barriers to starting and growing their businesses, like discriminatory property; matrimonial and
inheritance laws and/or cultural practices; lack of access to formal finance mechanisms; limited mobility and
access to information and networks, etc.
Obstacles specific to growing firms
A specific problem of women entrepreneurs seems to be their inability to achieve growth, especially sales
growth. Another issue is finance and, as stated previously, the entrepreneurial process is somewhat dependent on
initial conditions. In other words, as women often have a difficult time to assemble external resources, they start
as less ambitious firms that can be financed to a greater degree by their own available resources. This also has
consequences for the future growth of the firm. Basically, firms with more resources at start-up have a higher
probability to grow than firms with fewer resources.

Positive impact of women entrepreneurship:

Independent
Contribution to economic growth
Broaden outlook
Increase standard of living

Encouragement of women entrepreneurs:

In 1993, "Take Our Daughters To Work Day" was popularized to support career exploration for girls, later
expanded to Take Our Daughters and Sons to Work Day. Investing in women is not only the right thing to do
but also the smart thing to do.
(Hillary Clinton from unfoundation.org) Research shows that there are many support groups for women in
business, female entrepreneurs and women just looking for business advice. Women in different areas are
wanting to show the support that in some cases, they never had. One such group is can be found on Facebook
called Mompreneurs, https://www.facebook.com/groups/motivatedmompreneurs/ they offer encouragement,
advise and support to moms who seek to provide for their families through their own visions for business.
HerCorner, http://www.hercorner.org is a group located in Washington, D.C. This groups seeks to bring
women business owners together to collaborate with each other for the betterment of their businesses. There are
government backed programs available to female entrepreneurs and information can be found on their website at
http://www.sba.gov/about-offices-content/1/2895
and
their
Facebook
group
https://www.facebook.com/SBAgov?ref=br_tf. Female-only taxi companies in India, the UAE and Brazil
support working women. One example of successful women entrepreneurs in rural villages of Bangladesh is the
Infolady Social Entrepreneurship Programme (ISEP).

Young Entrepreneur:
There are several options for young entrepreneurs, who are just getting started, have little or no capital, or who
may not be able to dedicate themselves to their business full time.
Young entrepreneurs decide on a business type, such as:
Running an online business: Online Business Doing business online is a relatively low-cost way of starting
your business and one that could potentially be done part time. Whether its selling online on sites like eBay,
Amazon or Etsy, providing online services (such as website design), or delivering goods and services via your
own e-commerce site, online businesses can take many forms. Online business benefits include a low cost of
entry, low overhead cost, and can be lower risk than other business options. Additionally, you can usually start
the business in a very short time, as you do not need to find a physical space. There are some challenges to
online businesses. Generating site traffic is essential to sales so youll have to invest in search engine
optimization and social media practices to drive traffic as well as non-traditional marketing. You will not have a
lot of face-to-face customer contact so it is more difficult to gauge opinions and build relationships with your
customers. Online businesses also must comply with laws unique to conducting business over the internet.
Working from home: home-based businesses also have challenges. It can be difficult to maintain a work and
life balance, and youll experience a lack of social interaction on the job. Home-based businesses can look
unprofessional if, for example, you need to hold business meetings but lack a professional looking meeting
space. There are also limitations as to what types of businesses you can run from a home.
Freelancing: Freelancing allows you to be your own boss while doing what you enjoy. Often times, servicebased professions like graphic design, writing, photography, and pet-care can be done on a freelance basis. You
can usually start with little to no investment, are able to do it part-time, and do not normally need a physical
office or storefront. Websites such as oDesk, Elance, and Freelancer can be great places to explore opportunities
for freelancers. However, its also important to consider the challenges of freelancing: It can get lonely and may
be hard to gain enough business to support yourself by freelancing alone. Dont forget, freelancers are still
subject to business laws, so be sure to do your research regarding taxes, registration, and licensing just as you
would any other business venture.
Franchising: It is also a popular and relatively low risk business opportunity for young entrepreneurs;
however, many require a greater commitment and investment than the other business types weve talked about
so far. A franchise is a right granted to an individual or group to market a company's goods or services within a
certain territory or location. Some examples of today's popular franchises are McDonald's, Subway, and Dunkin
Donuts. There are many different types of franchises spanning many different industries, business types, and
investment levels. Franchising can be a relatively low-risk entry into business since you benefit from the
training and advisory services of the franchisor as you go about starting your business.

Pre and Post entrepreneurial outcomes experienced by young people:

The first of these is that market failures exist, making it more difficult for young people to realise their
entrepreneurial aspirations.
Second, because young people lack human, social and financial capital, these constraints again make it difficult
for young people to achieve their entrepreneurial goals. This reflects that there are both push (e.g. selfemployment was the only viable route out of unemployment) and pull (e.g. saw a profit opportunity)
motivations underlying the decision to become an entrepreneur. In terms of market failure, this perspective
suggests that young people face information imperfections both pre and post start up. Young people may simply
be unaware, limited definition of social disadvantage. Financiers may also find it difficult to judge the viability
of a young entrepreneur and their business. Typically, young people have a limited credit history. Financiers
may judge that they cannot adequately judge the quality of their new or existing business proposition and,
therefore, decide not to fund their business proposition.

Young people may also have limited networks (e.g. business contacts), leading to them having limited social
capital. This may have consequences for the setting up and running any business because, without adequate
levels of social capital, young people may struggle to build legitimacy amongst key stakeholders (e.g.
financiers, customers, suppliers).

Youth entrepreneurship assistance:

Three types of assistance: enterprise education, soft support (e.g. signposting, advice and assistance, skill
development) and hard support (e.g. micro-finance loans and grants). gnition, business planning, financial
management, sales and marketing), delivered either informally (e.g. a mentoring scheme) or more formally by
attending a course. Typically, the provision of such assistance is designed to help young people make an
effective transition into self-employment and increase the sustainability of their business. Again, it is difficult to
estimate the quantity and quality of soft support, partly because very many youth entrepreneurship programmes
either seek to ration their services (e.g. screening potential participants by asking them provide a business plan)
or provide hard (finance) support.

Social Entrepreneur
Social entrepreneurs are individuals with innovative solutions to societys most pressing social problems.
They are ambitious and persistent, tackling major social issues and offering new ideas for wide-scale
change. Social entrepreneurs often seem to be possessed by their ideas, committing their lives to changing
the direction of their field. They are visionaries, but also realists, and are ultimately concerned with the
practical implementation of their vision above all else.
Social entrepreneurship is the attempt to draw upon business techniques to find solutions to social problems.
This concept may be applied to a variety of organizations with different sizes, aims, and beliefs
Social entrepreneurs present user-friendly, understandable, and ethical ideas that engage widespread support in
order to maximize the number of citizens that will stand up, seize their idea, and implement it. Leading social
entrepreneurs are mass recruiters of local changemakers role models proving that citizens who channel their
ideas into action can do almost anything.
Historical Examples of Leading Social Entrepreneurs:

Susan B. Anthony (U.S.): Fought for Women's Rights in the United States, including the right to
control property and helped spearhead adoption of the 19th amendment.
Vinoba Bhave (India): Founder and leader of the Land Gift Movement, he caused the redistribution of
more than 7,000,000 acres of land to aid India's untouchables and landless.
Dr. Maria Montessori (Italy): Developed the Montessori approach to early childhood education.
Florence Nightingale (U.K.): Founder of modern nursing, she established the first school for nurses and
fought to improve hospital conditions.
John Muir (U.S.): Naturalist and conservationist, he established the National Park System and helped
found The Sierra Club.
Jean Monnet (France): Responsible for the reconstruction of the French economy following World War
II, including the establishment of the European Coal and Steel Community (ECSC). The ECSC and the
European Common Market were direct precursors of the European Union

Types:

Leveraged non-profit ventures: The entrepreneur sets up a non-profit organization to drive the adoption
of an innovation that addresses a market or government failure. In doing so, the entrepreneur engages a
cross section of society, including private and public organizations, to drive forward the innovation

through a multiplier effect. Leveraged non-profit ventures continuously depend on outside

philanthropic funding, but their longer term sustainability is often enhanced given that the partners
have a vested interest in the continuation of the venture.

Hybrid non-profit ventures :The entrepreneur sets up a non-profit organization but the model includes
some degree of cost-recovery through the sale of goods and services to a cross section of institutions,
public and private, as well as to target population groups. Often, the entrepreneur sets up several legal
entities to accommodate the earning of an income and the charitable expenditures in an optimal
structure. To be able to sustain the transformation activities in full and address the needs of clients, who
are often poor or marginalized from society, the entrepreneur must mobilize other sources of funding
from the public and/or philanthropic sectors. Such funds can be in the form of grants or loans, and even
quasi-equity.

Social business ventures :The entrepreneur sets up a for-profit entity or business to provide a social or
ecological product or service. While profits are ideally generated, the main aim is not to maximize
financial returns for shareholders but to grow the social venture and reach more people in need. Wealth
accumulation is not a priority and profits are reinvested in the enterprise to fund expansion. The
entrepreneur of a social business venture seeks investors who are interested in combining financial and
social returns on their investments.

Four factors that make social entrepreneurship distinct from other forms of entrepreneurship:
1.

mission-driven. They are dedicated to serve their mission of delivering a social value to the
underserved.

2.

act entrepreneurially through a combination of characteristics that set them apart from other types of
entrepreneurs (see Table 3).

3.

act within entrepreneurially oriented organizations that have a strong culture of innovation and
openness.

4.

act within financially independent organizations that plan and execute earned-income strategies. The
objective is to deliver the intended social value while remaining financially self-sufficient. This is achieved
by blending social and profit-oriented activities to achieve self-sufficiency, reduce reliance on donations and
government funding, and increase the potential of expanding the delivery of proposed social value .
Examples:

Frederick Law Olmsted (United States) Creator of major urban parks, including Rock Creek Park in
Washington DC, Central Park in NYC, and Mount Royal Park in Montreal, he is generally considered to
have developed the profession of landscape architecture in America.

Gifford Pinchot (United States) Champion of the forest as a multiple use environment, he helped
found the Yale School of Forestry and created the U.S.Forest Service, serving as its first chief.

Friedrich Wilhelm Raiffeisen (Germany) Pioneer of the rural bond of association as a substitute for
collateral in microfinance, and a principal founder of thecredit union and cooperative bank sectors that now
form a major segment of the European banking system.

Margaret Sanger (United States) Founder of the Planned Parenthood Federation of America, she led
the movement for family planning efforts around the world.

John Woolman (United States) Led U.S. Quakers to voluntarily emancipate all their slaves between
1758 and 1800, his work also influenced the British Society of Friends, a major force behind the British
decision to ban slaveholding. Quakers, of course, became a major force in the U.S. abolitionist movement
as well as a key part of the infrastructure of the Underground Railroad.

Ela Bhatt

Nand Kishore Chaudhary

Thinlas Chorol India

Ladakhi Women's Travel Company

Muhammad Yunus

Bangladesh

India

Self Employed Women's Association

India

Jaipur Rugs

Poverty

Poverty
Tourism

Grameen Bank Poverty, microfinance

DEFINITION OF 'MICROCREDIT'
An extremely small loan given to impoverished people to help them become self employed. Also known as
"microlending" or "microloan".
Microfinance and poverty
In developing economies and particularly in rural areas, many activities that would be classified in the
developed world as financial are not monetized: that is, money is not used to carry them out. This is often the
case when people need the services money can provide but do not have dispensable funds required for those
services, forcing them to revert to other means of acquiring them. In their book The Poor and Their Money,
Stuart Rutherford and Sukhwinder Arora cite several types of needs:

Lifecycle Needs: such as weddings, funerals, childbirth, education, home building, widowhood and old
age.
Personal Emergencies: such as sickness, injury, unemployment, theft, harassment or death.
Disasters: such as fires, floods, cyclones and man-made events like war or bulldozing of dwellings.
Investment Opportunities: expanding a business, buying land or equipment, improving housing,
securing a job.

Microfinance sector has grown rapidly over the past few decades. Nobel Laureate Muhammad Yunus is credited
with laying the foundation of the modern MFIs with establishment of Grameen Bank, Bangladesh in 1976.
Today it has evolved into a vibrant industry exhibiting a variety of business models. Microfinance Institutions
(MFIs) in India exist as NGOs (registered as societies or trusts), Section 25 companies and Non-Banking
Financial Companies (NBFCs). Commercial Banks, Regional Rural Banks (RRBs), cooperative societies and
other large lenders have played an important role in providing refinance facility to MFIs. Banks have also
leveraged the Self-Help Group (SHGs) channel to provide direct credit to group borrowers.
With financial inclusion emerging as a major policy objective in the country, Microfinance has occupied centre
stage as a promising conduit for extending financial services to unbanked sections of population. At the same
time, practices followed by certain lenders have subjected the sector to greater scrutiny and need for stricter
regulation.
Although the microfinance sector is having a healthy growth rate, there have been a number of concerns related
to the sector, like grey areas in regulation, transparent pricing, low financial literacy etc. In addition to these

concerns there are a few emerging concerns like cluster formation, insufficient funds, multiple lending and overindebtedness which are arising because of the increasing competition among the MFIs.
Introduction to Microfinance:
Microfinance is the provision of financial services to low-income clients or solidarity lending groups
including consumers and the self-employed, who traditionally lack access to banking and related
services. Microfinance is not just about giving micro credit to the poor rather it is an economic
development tool whose objective is to assist poor to work their way out of poverty. It covers a wide range
of services like credit, savings, insurance, remittance and also non-financial services like training,
counseling etc. According to the latest research done by the World Bank, India is home to almost one
third of the worlds poor (surviving on an equivalent of one dollar a day). Though many central
government and state government poverty alleviation programs are currently active in India,
microfinance plays a major contributor to financial inclusion. In the past few decades it has helped out
remarkably in eradicating poverty. Reports show that people who have taken microfinance have been
able to increase their income and hence the standard of living.
Salient features of Microfinance:

Borrowers are from the low income group

Loans are of small amount micro loans
Short duration loans
Loans are offered without collaterals
High frequency of repayment
Loans are generally taken for income generation purpose

Channels of Micro finance

In India microfinance operates through two channels:
1. SHG Bank Linkage Programme (SBLP)
2. Micro Finance Institutions (MFIs)
SHG Bank Linkage Programme
This is the bank-led microfinance channel which was initiated by NABARD in 1992. Under the SHG
model the members, usually women in villages are encouraged to form groups of around 10-15. The
members contribute their savings in the group periodically and from these savings small loans are
provided to the members. In the later period these SHGs are provided with bank loans generally for
income generation purpose. The groups members meet periodically when the new savings come in,
recovery of past loans are made from the members and also new loans are disbursed. This model has been
very much successful in the past and with time it is becoming more popular. The SHGs are self-sustaining
and once the group becomes stable it starts working on its own with some support from NGOs
SHG model How it works and institutions like NABARD and SIDBI.
Micro Finance Institutions: Those institutions which have microfinance as their main operation are
known as micro finance institutions. A number of organizations with varied size and legal forms offer
microfinance service. These institutions lend through the concept of Joint Liability Group (JLG). A JLG
is an informal group comprising of 5 to 10 individual members who come together for the purpose of
availing bank loans either individually or through the group mechanism against a mutual guarantee. The
reason for existence of separate institutions i.e. MFIs for offering microfinance are as follows:

High transaction cost generally micro credits fall below the break-even point of providing loans
by banks
Absence of collaterals the poor usually are not in a state to offer collaterals to secure the credit
Loans are generally taken for very short duration periods
Higher frequency of repayment of installments and higher rate of Default

Benefits :

Microfinancing produces many benefits for poverty stricken, or low- income households. One of the
benefits is that it is very accessible.

Banks today simply wont extend loans to those with little to no assets, and generally dont engage in
small size loans typically associated with microfinancing.

Through microfinancing small loans are produced and accessible.

Microfinancing is based on the philosophy that even small amounts of credit can help end the cycle of
poverty.

Another benefit produced from the microfinancing initiative is that it presents opportunities, such as
extending education and jobs.

Families receiving microfinancing are less likely to pull their children out of school for economic
reasons.

Improve the standard of living amongst impoverished communities

Challenges:

Community members may cheat poorer or less-educated neighbours.

The ability of poorer people to save may also fluctuate over time as unexpected costs may take priority
which could result in them being able to save little or nothing some weeks.

Rates of inflation may cause funds to lose their value, thus financially harming the saver and not
benefiting collector

Financial illiteracy
Inability to generate sufficient funds: Though NBFCs are able to raise funds through private equity
investments because of the for-profit motive, such MFIs are restricted from taking public deposits. Notfor-profit companies which constitute a major chunk of the MFI sector have to primarily rely on
donations and grants from Government and apex institutions like NABARD and SIDBI. In absence of
adequate funding from the equity market, the major source of funds for MFIs are the bank loans, which
is the reason for high Debt to Equity ratio of most MFIs.
Dropouts and Migration of group members: The two major problems with the group concept are
dropouts (when one or more members leave the group) and migration (when one or more members
move to another group).
Transparent Pricing: Though the concern about the transparent pricing in the microfinance sector has
been an older one, it is gaining significance with the growing size and the increasing competition in the
sector. Non-transparent pricing by MFIs confines the bargaining power of the borrowers and their
ability to compare different loan products, because they dont know the actual price. In absence of the

proper understanding of the pricing, clients end up borrowing more than their ability to payback which
results in over-indebtedness of the borrower.
Cluster formation fight to grab established market:MFIs drive to grab an established market and
reduce their costs is resulting in formation of clusters in some areas leaving the others out of the
microfinance outreach. By getting an established microfinance market, MFIs reduce their initial cost in
group formation of clients, educating them and creating awareness about microfinance.
Multiple Lending and Over-Indebtedness: Microfinance is one such sector where the Neo-liberal theory
of free market operation fails, at least to some extent. Though competition is good for many sectors but
in this case it is going against both the parties. In order to eat away each others market share, MFIs are
ending up giving multiple loans to same borrowers which in some cases is leading to over-indebtedness
(a situation where the borrower has taken loans more than her/his repaying capacity) of the borrower.

Recommendations
1. Proper Regulation: The regulation was not a major concern when the microfinance was in its nascent stage
and individual institutions were free to bring in innovative operational models. However, as the sector completes
almost two decades of age with a high growth trajectory, an enabling regulatory environment that protects
interest of stakeholders as well as promotes growth, is needed.
2. Field Supervision: In addition to proper regulation of the microfinance sector, field visits can be adopted as a
medium for monitoring the conditions on ground and initiating corrective action if needed. This will keep a
check on the performance of ground staff of various MFIs and their recovery practices. This will also encourage
MFIs to abide by proper code of conduct and work more efficiently. However, the problem of feasibility and
cost involved in physical monitoring of this vast sector remains an issue in this regard.
3. Encourage rural penetration: It has been seen that in lieu of reducing the initial cost, MFIs are opening their
branches in places which already have a few MFIs operating. Encouraging MFIs for opening new branches in
areas of low microfinance penetration by providing financial assistance will increase the outreach of the
microfinance in the state and check multiple lending. This will also increase rural penetration of microfinance in
the state.
4. Complete range of Products: MFIs should provide complete range of products including credit, savings,
remittance, financial advice and also non-financial services like training and support. As MFIs are acting as a
substitute to banks in areas where people dont have access to banks, providing a complete range of products
will enable the poor to avail all services.
5. Transparency of Interest rates: As it has been observed that, MFIs are employing different patterns of
charging interest rates and a few are also charging additional charges and interest free deposits (a part of the loan
amount is kept as deposit on which no interest is paid). All this make the pricing very confusing and hence the
borrower feels incompetent in terms of bargaining power. So a common practice for charging interest should be
followed by all MFIs so that it makes the sector more competitive and the beneficiary gets the freedom to
compare different financial products before buying.
6. Technology to reduce Operating Cost: MFIs should use new technologies and IT tools & applications to
reduce their operating costs. Though most NBFCs are adopting such cost cutting measures, which is clearly
evident from the low cost per unit money lent (9%-10%) of such institutions. NGOs and Section 25 companies
are having a very high value of cost per unit money lent i.e. 15-35 percent and hence such institutions should be
encouraged to adopt cost-cutting measures to reduce their operating costs. Also initiatives like development of
common MIS and other software for all MFIs can be taken to make the operation more transparent and efficient.
7. Alternative sources of Fund: In absence of adequate funds the growth and the reach of MFIs become
restricted and to overcome this problem MFIs should look for other sources for funding their loan portfolio.
Some of the ways through which MFIs can raise their fund are:

NBFC: Without investment by outside investors, MFIs are limited to what they can borrow to a
multiple of total profits and equity investment. To increase their borrowings further, MFIs need to raise
their Equity through outside investors. The first and the most crucial step to receive equity investment
are getting converted to for-profit NBFC. Along with the change in status the MFI should also develop
strong board, a quality management information system (MIS) and obtain a credit rating to attract
potential investors.
Portfolio Buyout: It is when banks or other institutions purchase the rights to future payment stream
from a set of outstanding loans granted by MFIs. In such transactions MFIs are responsible for making
up any loss in repayment up to a certain percentage of the portfolio and this clause is known as first
loss default guarantee. The above clause ensures that the MFI retains the correct incentive to collect
these loans. To ensure security to the buying institution, MFIs are allowed to sell off as much of the
outstanding portfolio as is financed by accumulated earnings or equity.
Securitization of Loans: This refers to a transaction in which the repayments from a set of microloans
from one or more MFIs are packaged into a special purpose vehicle, from which tradable securities are
issued. As the loans from multiple MFIs can be pooled together the risk gets diversified. Though
securitization of loans and portfolio buyout are similar in many ways like first loss default guarantee
clause, limit to the amount of loans that can be sold off etc. The major difference between the two is
that securitizations require a rating from a credit rating agency and that it can be re-sold, which makes
securitized loans attract more potential buyers. Also unlike portfolio buyout, there can be multiple
buyers and sellers for each transaction in case of securitization of loans as compared to single buyer
and single seller in portfolio buyout. Through securitization, MFIs can tap new sources of investments
because fund of certain types like mutual funds, which are barred from directly investing in MFIs, can
invest through securitized loans.

Institutions:
Meaning
Entrepreneurial Development Programme means a programme conducted to help a person in strengthening his
entrepreneurial motive and in acquiring skill and capabilities required for promoting and running an enterprise
efficiently. A programme which is conducted with a motive to promote potential entrepreneurs, understanding of
motives, motivational pattern, their impact on behaviour and entrepreneurial value is termed as entrepreneurial
development programme. There are a number of programmes which give information to the prospective
entrepreneurs regarding new business idea, how to set up a new venture, how to prepare a project report, sources
of finance etc. These programmes should not be confused with EDP; these are all a part of EDP. EDP is
primarily concerned with developing, motivating entrepreneurial talent and understanding the impact of
motivation on behaviour.
Importance:

Economic Growth: EDP is a tool of industrialisation and path to economic growth through
entrepreneurship.

Balanced Regional Development: EDP helps in dispersal of economic activities in different regions
by providing training and other support to local people.

Eliminates Poverty and Unemployment : EDPs provide opportunities for self-employment and
entrepreneurial careers.

Optimum use of Local Resources : The optimum use of natural, financial and human resources can
be made in a country by training and educating the entrepreneurs.

Successful Launching of New Unit : EDP develops motivation, competence and skills necessary for
successful launching, management and growth of the enterprise.

Empowers New Generation Entrepreneurs : EDP, by inculcating entrepreneurial capabilities and

skill in the trainees, create new generation entrepreneur who hitherto was not an entrepreneur
The National Institute for Entrepreneurship and Small Business Development is a premier organisation of the
Ministry of Skill Development and Entrepreneurship, engaged in training, consultancy, research, etc. in order to
promote entrepreneurship. The major activities of the Institute are Training of Trainers, Management
Development Programmes, Entrepreneurship-cum-Skill Development Programmes, Entrepreneurship
Development Programmes and Cluster Intervention. The Institute has conducted a total of 21735 different
Training programmes, till June, 2015, covering 558482 participants which includes 187 International
programmes with 3237 participants from more than 130 countries. The Ministry of MSME is committed to
training of youth to be employable. The training is imparted through the modality of apex organizations
namely National Institute for Entrepreneurship & Small Business Development (NIESBUD) , Indian Institute of
Entrepreneurship (IIE) , National Institute for Micro, Small and Medium Enterprises (NI-MSME) , National
Small Industries Corporation Ltd (NSIC) . To enhance the outreach of trainee, these apex organizations not only
impart training themselves but also through various implementing partner institutions.
EDI:, strengthening the infrastructure of the existing EDIs and for supporting entrepreneurship and skill
development activities. The main objectives of the scheme are development of indigenous entrepreneurship
from all walks of life for developing new micro and small enterprises, enlarging the entrepreneurial base and
encouraging self-employment in rural as well as urban areas, by providing training to first generation
entrepreneurs and assisting them in setting up of enterprises. The assistance shall be provided to these training
institutions in the form of capital grant for creation/strengthening of infrastructure and programme support for
conducting entrepreneurship development and skill development programmes.

NIESBUD: NIESBUD is an apex organization under M/o MSME engaged in Training, Consultancy,
Research and Publication in order to promote entrepreneurship. The major activities of the Institute
consist of Training of Trainers, Management Development Programmes, Entrepreneurship- cum-Skill
Development Programmes and Entrepreneurship Development Programme.
NIMSME: National Institute for MSMEs (NI-MSME), is a premier institution for the promotion,
development and modernization of the SME sector. The Institute strives to achieve its avowed
objectives through a gamut of operations ranging from training, consultancy, research and education, to
extension and information services.
IIE - Indian Institute of Entrepreneurship: Indian Institute of Entrepreneurship (IIE) (1993) with an
objective to promote and develop entrepreneurship, to conduct research and provide consultancy for
entrepreneurship development and to collaborate with other organizations in undertaking training,
research and other activities.

Entrepreneurship Development Programmes (EDPs) in India: A Historical Perspective!

Concerted efforts on entrepreneurship development in India started with the establishment of Small Industry
Extension and Training Institute (SIET), now NISIET, in 1962 in Hyderabad. SIET got an opportunity with
support from Harvard University to do pioneering work in entrepreneurship development in India.
SIET in collaboration with Prof. David C. McClelland of Harvard University conducted 5-years training and
research programmes in Rajamundi, Kakinada and Vellur towns of Andhra Pradesh and Tamil Nadu.
McClelland proved that, through proper education and training, the vital quality of an entrepreneur, which
McClelland called need for achievement (n ach) can be developed. The fact remains that McClellands this
successful experiment proved to be a seed for entrepreneurship development in India which has by now become
a movement as EDP (Entrepreneurship Development Programmes) in the country.

It is against this background now the Government and financial institutions started thinking to develop
entrepreneurship in the country through training programmes. It was the Gujarat Industrial Investment
Corporation (GIIC) which for the first time started a three-month training programme on entrepreneurship
development in 1970.
This programme was designed to unleash the talent of potential entrepreneurs and some selected entrepreneurs.
Special emphasis was given on three aspects:
(i) Establishment of small-scale enterprises,
(ii) Its management, and
(iii) To earn profits out of it. By the latter half of 1970s, the news of GIICs EDP spread to the other parts of the
country also.
A major initiative to foster economic development in the North East India took place with the establishment of
the North Eastern Council (NEC) in 1972. The main objective of the NEC was to promote economic
development of the NER through inter-state plans and bring the NER to the mainstream of the country. This is a
matter of great satisfaction that the NEC has since been seriously involved in its task of regional development.
Two more significant efforts were initiated in 1973 with an objective to remove the economic backwardness of
the region. One, the establishment of the North Eastern Industrial and Technical Consultancy Organization,
(NEITCO) to impart training on entrepreneurship development, and second, the establishment of the
Entrepreneurial Motivation Training Centers (EMTCs) in its six district headquarters of Assam. Since EMTC
was one of the oldest and noblest initiatives taken in the field of entrepreneurship development in the country,
some mention about the same seems pertinent. The State Planning Board of the Government of Assam, under
the dynamic leadership of the then Chief Minister, took the initiative in requesting SIET Institute, Hyderabad to
be associated with training and research in the field of entrepreneurship development in Assam with specific
focus on self employment for the educated unemployed youth of the State (Mali 2000).
In response to it, the SIET Institute organized two training programmes for three weeks duration each in 1973,
for the officers of Government of Assam One training programme was focused on entrepreneurship
development for a selected band of officers from the departments of industry, agriculture, animal husbandry,
public works and other departments and financial institutions of the Government of Assam.
The training programme included inputs like various methods and techniques of identification and development
of prospective entrepreneurs, development of entrepreneurial personality, and identification of economic
opportunities for setting up small-scale enterprises in the State.

Functional areas of management for establishing and operating small enterprises on sound lines were also
included in the training programmes. Second the another simultaneous training was imparted to the another
group of officers of the industries department to encourage people to establish small-scale industries, undertake
industrial potential surveys, select growth centers, plan infrastructure facilities, and develop business profiles.
The integrated model of entrepreneurship development proposed by SIET included five main components,
namely:
(i) Local organization to initiate and support potential entrepreneurs till the break-even stage,
(ii) Inter-disciplinary approach,
(iii) Strong information support,
(iv) Training as an important intervention for entrepreneurial development, monitoring and evaluation, and
(v) Institutional financing.
Initially EMTCs were established in six centers in Assam under the State Planning Board, which were
monitored by 26 officers trained by SIET in May 1973. The team in each centre consisted of multi disciplinary
talents. It is learnt that in 1979, after a comprehensive evaluation of the performance of EMTCs by SIET
Institute, the programme was transferred from the State Planning Board to the Industries Department. Three
more centers were added to the earlier six locations.
The nine EMTCs where the programme was being implemented were as follows: Mangaldoi (Darrang District),
Silchar (Cachar District), Diphu (Karbi Analong District), Jorhat (Jorhat District), Dhemaji (Dhemaji District),
Kokrajhar (Kokrajhar District), in 1973, Dibrugarh (Dibrugarh District), Nalbari (Nalbari District) and Nagaon
(Nagaon District), in 1979.
SIET and Small Industry Development Organisation (SIDO) through Small Industry Services Institute (SISl)
and Industrial Development Bank of India (IDBI) and Technical Consultancy Organisations (TCOs) started
organising EDPs. The encouraging results of these efforts culminated to the establishment of Centre for
Entrepreneurship Development (CED), Ahmedabad in 1979. Here, it is noteworthy that CED, Ahmedabad was
the first centre of its kind wholly committed to the cause of entrepreneurship development.
Inspired and influenced by the success of CED, Ahmedabad; the national-level financial institutions such as
IDBI, IFCI, ICICI and SBI with active support from the Gujarat Government sponsored a Nation Resource
Organisation, called Entrepreneurship Development Institute of India (EDI), Ahmedabad, in 1983.
This institute was entrusted with the responsibility of extension and institutionalization of entrepreneurship
development activities in the country which the Institute has been discharging successfully.

Almost at the same time of establishment of EDI in 1983, the Government of India established National
Institute for Entrepreneurship and Small Business Development (NIESBUD) to coordinate entrepreneurship
development activities in the country. In course of time, some State Governments with the support from national
level financial institutions established state-level Center for Entrepreneurship Development (CED) or Institute
of Entrepreneurship Development (lED).
By now, the twelve States, viz., Bihar, Goa Gujrat, Himachal Pradesh, Jammu & Kashmir, Karnataka, Kerala,
Madhya Pradesh, Maharashtra, Odisha, Tamil Nadu, and Uttar Pradesh have established either CED or lED.
EDPs in these states were conducted by the TCOs before the establishment of CEDs or lEDs. According to the
study of NIESBUD, some 686 organisations are involved in conducting EDPs in the country which have
imparted training to thousands of people by conducting hundreds of EDPs.
LIST OF ENTREPRENEURSHIP DEVELOPMENT INSTITUTES
1.
Shri
A.K.
Srivastave
(Director)
Institute of Entrepreneurship Development (UP) A 1 & 2 Sarojini Nagar, Industrial Area, Kanpur Road,
Lucknow-226008 (UP)

2.
Sh.
G.
Nagraju
(Director)
Centre for Entrepreneurship Development of Karnataka, "West View" UB Hills, Near D.C. office,
Dharward-580007

3.
Sh.
Maharashtra Centre
Aurangabad-431005

for

B.V.
Entrepreneurship

Development

Rathod
A-38, MIDC

near

Railway

4.
Sh.
P.N.
Mishra,
(Executive
Centre for Entrepreneurship Development, 60 Jail Road, Jahangirabad, Bhopal-462008

5.
Sh.
B.P.
Institute of
Entrepreneurship
Mancheswar
Industrial
Bhubneswar-751010 Orissa

Rayaguru,
Development,
IEDO,
Plot
No.
Estate
(near
Postal

6.
Sh.
P.A.
Kerala Industrial & Technical Consultancy
M.G. Road, Cochin-682016

Ramaswamy,
organisation Ltd., P.B.

Dir)

(Director
123, Sector-A,
Printing

No.

(Director)
Station

1820,

)
Zone-A,
Press)

(M.D.)
Ravipuram,

7.
Sh.
P.C.
Gupta,
H.P.C.E.D., Udyog Bhawan, Bemloe, Shimla-171001

8.
Dr.
R.
Centre
for
Entrepreneurs
T.B. Road, Madurai-625010

9.
Sh.
Haryana
Institute
Gurgaon-122001

10.
Sh.
Entrepreneurship
Jaipur-302019

and

of

D.K.
Management

12.
Member
J&K
Entrepreneurship
O/o
Directorate
of
Industries
J & K Govt. Jammu/ Srinagar

B.S.F.C.

raman
CED

Prasanna
Public
Administration,

11.
Smt.
K.
CED
an
undertaking
Narayanaguda, Hyderabad-500029

13.
Sh.
IED
Bihar,
PATNA-800 001

Jaya
Development,

(Executive

76,

Sharma,
Laboratory Building,

Rama
Association

of

Development
&
Commerce,

Lakshman
Building,

5th

Prasad
floor,

SIPPO

Kumar,
HIPA

22

(Member
Campus

Pradesh,

(Executive
Road,
P.B.

&
&

Director)
Area-1

(President,)
3-5-1091/15

Institute
(J&K,
Exhibition
Ground,
Residency

Fraser

Secy.)
4,

(IAS)
Sector-18

Industrial

Devi,
Andhra

No.

Complex,

(Jt.
Godown,

14.
Dr.
V.G.
Patil,
(Vice-President
EDII,
(Near
Village
Bhat,
Via
Ahmedabad
Airport,
P.O. Bhat, Ahmedabad-382428, Gandhi Nagar, Gujrat

business plan

Dir.)

Indira

Secretary,
EDI)
Road,

No.

Dir)
114,

Director,)
Bridge,

A
is a formal statement of business goals, reasons they are attainable, and plans for
reaching them. It may also contain background information about the organization or team attempting to reach
those goals.

Typical structure for a business plan for a start up venture [8]

cover page and table of contents

executive summary

mission statement

business description

business environment analysis

SWOT analysis

industry background

competitor analysis

market analysis

marketing plan

operations plan

management summary

financial plan

attachments and milestones

Typical questions addressed by a business plan for a start up venture [9]

What problem does the company's product or service solve? What niche will it fill?

What is the company's solution to the problem?

Who are the company's customers, and how will the company market and sell its products to them?

What is the size of the market for this solution?

What is the business model for the business (how will it make money)?

Who are the competitors and how will the company maintain a competitive advantage?

How does the company plan to manage its operations as it grows?

Who will run the company and what makes them qualified to do so?

What are the risks and threats confronting the business, and what can be done to mitigate them?

What are the company's capital and resource requirements?

What are the company's historical and projected financial statements?

Business Plan Format

Vision statement

The people

Business profile

Economic assessment

Eight Steps to a Great Business Plan

Review sample plans

Focus and refine concept

Gather data

Outline the specifics of your business

Include experience

Review language and projections

Put your plan into a compelling form

Enhance with graphics

Does Your Plan Include the Following Necessary Factors

A sound business concept

Understanding your market

Healthy, growing and stable industry

Capable management

Able financial control

Consistent business focus

Mind set to anticipate change

Plans for online business

Top Ten Do's and Don'ts

THE TOP TEN DO'S

Prepare a complete business plan for any business you are considering.
Use the business plan templates furnished in each session.
Complete sections of your business plan as you proceed through the course.
Research (use search engines) to find business plans that are available on the Internet.
Package your business plan in an attractive kit as a selling tool.
Submit your business plan to experts in your intended business for their advice.
Spell out your strategies on how you intend to handle adversities.
Spell out the strengths and weaknesses of your management team.
Include a monthly one-year cash flow projection.
Freely and frequently modify your business plans to account for changing conditions.

THE TOP TEN DON'TS

Be optimistic (on the high side) in estimating future sales.

Be optimistic (on the low side) in estimating future costs.
Disregard or discount weaknesses in your plan. Spell them out.
Stress long-term projections. Better to focus on projections for your first year.
Depend entirely on the uniqueness of your business or the success of an invention.
Project yourself as someone you're not. Be brutally realistic.
Be everything to everybody. Highly focused specialists usually do best.
Proceed without adequate financial and accounting know-how.
Base your business plan on a wonderful concept. Test it first.
Pursue a business not substantiated by your business plan analysis.

Venture capital financing is a type of financing by venture capital. It is private equity capital provided as seed
funding to early-stage, high-potential, growth companies (startup companies) or more often it is after the seed
funding round as a growth funding round (also referred to as series A round). It is provided in the interest of
generating a return on investment through an eventual realization event such as an IPO or trade sale of the
company.

Venture capital financing process:

Stages of Venture Development:
Seed Stage
- Defining the concept of the business
- Gathering initial financial resources (friends and family)
- Building the prototype

Startup Stage
- Assembling the startup team
- Analyzing the competition, identifying customers and Getting your first customer
- Going beyond the prototype to a truly scaleable product

Early Stage
- Increasing the number of customers
- Raising institutional money
- Recruiting a complete management team and implementing the business

Growth Stage
- Focusing products on the mass market
- Expanding sales and marketing. Rapid revenue growth
- Reporting relationships and authorities
- Developing systems of internal control (sales, finance, development, support, etc)

IPO/Exit
- Formalizing the culture and rationalizing the strategy
- Going public or merger/acquisition

There are five common stages of venture capital financing:

1.

The Seed stage:

2.

The Start-up stage

3.

The Second stage

4.

The Third stage

5.

The Bridge/Pre-public stage

Stages of Venture Capital-Financing

Seed Stage
General description This stage starts with an idea for a product, technology or service. The most important
targets now are the development of a prototype, the definition of relevant markets and the formulation of a
corporate concept. The primary task of the Seed Stage is to estimate the chances of success for the new
enterprise.
Seed-Financing In this early stage of the company founding, the company needs a comparatively low capital
expenditure. As there is no marketable product or a thorough market analysis yet, an investment in this stage
involves great risks. Business Angels and VC-networks are preferred contact points for entrepreneurs, because
they have the needed know-how and typically invest smaller amounts than venture capital firms.

Start-Up Stage
General description - The company is already being set up. First market analyses have been accomplished and
the product is on its way from the development stage to the market launch. Now, resources and materials have to
be provided. Additionally, in this stage, the company makes first attempts on advertising and acquisition of
potential customers.
Start-up-Financing Because of the many requirements in the Start-up Stage, capital requirements increase, too.
In addition to Business Angels, networks, friends and family, venture capital firms can now start to invest higher
expenditure and engage in the long-term development of the company.
First Stage
General description Once the product is thoroughly tested and ready for market, the First-Stage-Financing
starts with the market launch.
First Stage-Financing Now the invested capital is needed for the further development of the company,
especially in sales, marketing and production facilities. Therefore, the First Stage has higher capital

requirements, but also, the loss-making Early Stage comes to an end. Venture capital firms are typical investors
in this stage.
Second Stage
General description The Second Stage is about market expansion, additional production capacities and product
diversification to stand out from competition and to balance product-specific fluctuations through a broad range
of services.
Second StageFinancing The enterprise is usually growing exponentially in this stage, so the generated gains
often cannot provide for further expansion. This is why the company typically still resorts to venture capital
firms and subsidies.
Bridge Stage
General description If the company has successfully run through the first expansion stages, the next step might
be an acquisition of another company or a joint venture, which will need further financing. Bridge-Financing
Now that the enterprise has reached maturity, flotation or corporate succession through MBI or MBO is
possible. This transitional period is therefore called Bridge-Stage. At the end of the Bridge-Stage, investors sell
their shares and herewith end their engangement.

Seven different strategic types (cells) to seek and

pursue business opportunities, such as (i) reactive
imitation, (ii) proactive localization, (iii) import substitution, (iv) creative
imitation, (v) global niche, (vi) early market entry, and (vii) global innovation.
These seven new venture strategies represent not all new ventures but, in fact,
are a more comprehensive framework than any other classification. Of the seven
new venture strategies, the first three strategies (reactive imitation, proactive
localization, import substitution) focus on the local market, three other strategic
types (global niche, early market entry, global innovation) target the global
market, and the last one (creative imitation) is derived from an overlapped cell of
two geographical markets.
Reactive imitator (local followers in the local existing market): Reactive imitators
are representatives of traditional small- and medium-sized enterprises (SMEs)
that focus on the already existing market in the maturity or decline stage of
market development. They are very reluctant to invest their resources into R&D
activities. They usually imitate competitors products and services so that they
do not have technological capabilities important for innovations.
Import substitution (local pioneers in the local existing market): Despite sizeable
markets and well-known customer needs, local firms are hardly able to seize
local product markets due to inferior technological capabilities. In these markets,
multinational corporations (MNCs) and global innovators are offering
technologically superior products to local customers and dominate the local
market. Local large firms and SMEs could neither produce the technologically
sophisticated products nor have sufficient technological knowledge to develop
products with similar levels of technological function and quality.
Proactive localization (local followers in the local emerging market):
Technological and market uncertainty are common and present unavoidable risks

for all firms in developing new products and entering new markets. If a firm can
reduce at least one of the two risks in business, the business opportunity
becomes more attractive than others. When new ventures use other firms
already proven and widely used technologies, local firms can reduce
technological uncertainty on R&D investment. They develop a new local market
with new technology and products of other firms. For example, they are local
partners of foreign companies to enter into these local markets. These local new
ventures develop a local new market with globally emerging products and adjust
technology and products to local customers needs. The performance and growth
of these new ventures using proactive localization depends on the potential size
and growth of the local market in new products, reliable and trustable strategic
alliance with foreign partners for new products and core technologies, and entry
of other firms and competition in the market.
Creative imitation (local pioneers/global followers in the local emerging/global
existing market): One of the distinctive strategic types is the new venture using
creative imitation for different geographical marketsglobal and local markets,
in contrast to other new ventures focusing on either the local or global market.
New ventures that pursue creative imitation have technological capabilities in
the emerging industries in the local market. Also, they are followers in the
existing global market, although other local new ventures hardly enter the global
market. Creative imitators differ from import substitution because they are in
emerging industries and the boundary of competition is the global market. They
have similar technological capabilities to those of the import substitution type in
the existing local market, and face higher market uncertainty because they
pursue the globally existing but locally emerging market. The competitive
advantages of the creative imitation type generally count on the first-mover
advantages and technological capabilities in the local market and follower
advantages in the global market. We can divide creative imitation into two
phases according to the target market of new ventures. Creative imitation I (local
pioneer in the local emerging market) just focuses on the local market, while
creative imitation II (global follower in the global existing market) becomes a
global player in the global market.
Global niche (global pioneers in the global existing market): The typical
competitive pattern of industry shifts to price-based competition by the mass
production of standardized products and intensified competition (Utterback,
1994). Only a small number of firms dominate the market with low costs on mass
production and sustain their positions in protection of high entry barriers due to
heavy capital investment and complementary assets for new entrants. But these
mass-producing firms cannot serve all customers with the same standardized
products and services. If new ventures are specialized in some unique sectors,
they can exploit technological differentiation. New ventures can focus on small
and segmented niche markets very well and command a price premium for
specialized products and services. The competitive activity of global market
players is enhancing technological capability to serve the products in the
particular business areas.

Early market entry (global followers in the global emerging market): The waves
of technological innovations have accelerated technological changes and
shortened product life cycles. In emerging industries, there are often a number of
competing technologies and differently designed products developed by global
innovators. In addition to a few successful global innovators, some fast followers
in global markets can growth very fast because they can understand the
technological and market changes and implement business strategies quickly.
Their technology strategies focus on the timely commercialization of products in
combination with the existing knowledge base and new ones without regard to
the boundary of firms and geographical markets. Only new ventures with
significant technological capabilities can follow up the rapid technological
changes in the global market. The competitive advantages of this type are
derived from the timing based on the global market. As market development
progresses, the opportunities in the emerging market will be reduced.
Global innovator (global pioneers in the global emerging market): New industries
are created through the invention and commercialization of new technology and
through the application of existing technology to the new products. New ventures
have played a central role in creating new markets and sources of innovation.
The early stages of technological development typically involve competition
between different technologies and different design configurations. In a new
industry, the essential condition for being able to compete is to possess the
technology and knowledge necessary to produce the products or services. The
distinguishing characteristic of technology-intensive industries, especially
information technology (IT) sectors, is the importance of technological standards
to compete with other products, firms, and technological community. The global
innovator can set their technological specification as platforms, dominant
designs, and industry standards through active participation in the international
technological community. The success of pioneers depends on the (i)
sustainability of first-mover advantages, (ii) emergence of competing
technologies, (iii) complementary assets, and (iv) entry timing of competitors.
Valuation Methods:
Discounted Cash Flow (DCF)
Method: The discounted cash flow method takes free cash flows generated in the future by a specific project /
company and discounts them to derive a present value (i.e. todays value).

The discounting value usually used is the weighted average cost of capital (WACC) and is symbolized as the r
in the following formula
DCF = Calculated DCF value
CF = Cash Flow
r = Discount rate (WACC: Weighted average cost of capital)

Uses: DCF calculations are used to estimate the value of potential investments. When DCF calculations produce
values that are higher than the initial investment, this usually indicates that the investment may be worthwhile
and should be considered.

Risk adjusted NPV

Method: The risk adjusted net present value (NPV) method employs the same principle as the DCF method,
except that each future cash flow is risk adjusted to the probability of it actually occurring.

The probability of the cash flow occurring is also known as the success rate.
Uses: Risk adjusted NPV is a common method of valuing compounds or products in the pharmaceutical and
biotech industry, for example. The success rates of a particular compound/drug can be estimated, by comparing
the probability that the compound/drug will pass the various development phases (i.e. phases I, II or III) often
undertaken in the drug development process.
Also known as: rNPV, eNPV (e=estimated/expected)

Venture Capital method

Method: The venture capital method reflects the process of investors, where they are looking for an exit within 3
to 7 years. First an expected exit price for the investment is estimated. From there, one calculates back to the
post-money valuation today taking into account the time and the risk the investors takes.
The return on investment can be estimated by determining what return an investor could expect from that
investment with the specific level of risk attached.
Uses: The Venture Capital method is an often used in valuations of pre revenue companies where it is easier to
estimate a potential exit value once certain milestones are reached.

Market comparables method

Method: The market comparables method attempts to estimate a valuation based on the market capitalization of
comparable listed companies.
Uses: The market comparables method is a simple calculation using different key ratios like earning, sales, R&D
investments, to estimate the value of a company.
Also known as: Multiples

Comparable Transaction method

Method: The comparable transaction method attempts to value an entire company by comparing a similar sized
private company in a similar field, and using different key ratios. The price for a similar company can either
come from an M&A transaction or a financing round.

Uses: The comparable transaction method is a simple calculation estimating he value of a target company based
on comparable investments or M&A deals.
Decision Tree analysis
Method: Decision trees are used to forecast future outcomes by assigning a certain probability to a particular
decision. The name decision tree analysis comes from the tree like shape the analysis creates where each
branch is a particular decision that can be undertaken. Uses: Decision trees are used to give a graphical
representation of options, strategies or decisions that can be undertaken to reach a particular goal or decision.

'SENSITIVITY ANALYSIS'
A technique used to determine how different values of an independent variable will impact a particular
dependent variable under a given set of assumptions. This technique is used within specific
boundaries that will depend on one or more input variables, such as the effect that changes in interest
rates will have on a bond's price. Sensitivity analysis is a way to predict the outcome of a decision if a
situation turns out to be different compared to the key prediction(s)