What Does Venture Capital Mean?

Money provided by investors to startup firms and small businesses with perceived long-term growth potential. This is a very important source of funding for startups that do not have access to capital markets. It typically entails high risk for the investor, but it has the potential for aboveaverage returns. Venture capital is money provided by professionals who invest alongside management in young, rapidly growing companies that have the potential to develop into significant economic contributors. Venture capital is an important source of equity for start-up companies.
Venture capitalists generally: Finance new and rapidly growing companies; Purchase equity securities; Assist in the development of new products or services; Add value to the company through active participation; Take higher risks with the expectation of higher rewards; Have a long-term orientation 1.5 Characteristics of Venture Capital The three primary characteristics of Venture capital fund which may the meminently suitable as a source of risk finance are: (1) that it is equity or quasi equity investments; (2) it is long-term investment; and (3) it is an active from of investment 1.6 Types of Venture Capital Firms Venture Capital can be divided into many different types according to thecharacteristics of the shareholders and sources of investment -- such as private equityfirms, banks, financial institutions, private corporations, the government or insurancecompanies.Generally there are three types of organized or institutional venture capital funds:venture capital funds set up by angel investors, that is, high net worth individualinvestors; venture capital subsidiaries of corporations and private venture capitalfirms/ funds. Venture capital subsidiaries are established by major corporations,commercial bank holding companies and other financial institutions.Venture funds in India can be classified on the basis of the type of promoters. Financial institutions led by ICICI ventures, ILFS, etc. Private venture fundslike Indus, etc. Regional funds: Warburg Pincus, JF Electra (mostly operating out of HongKong).

Regional funds dedicated to India: Draper, Walden, etc. Offshore funds: Barings, TCW, HSBC, etc. Corporate ventures: venture capital subsidiaries of corporations. Angels: high net worth individual investors. Merchant bankers and NBFCs who specialize in "bought out" deals also fundcompanies.On the basis of geographical focus Regional GlobalOn the basis of industry specialty IT and IT-enabled services Software Products (Mainly Enterprise-focused) Wireless/Telecom/Semiconductor Banking Media/Entertainment Bio Technology/Bio Informatics Pharmaceuticals Contract Manufacturing RetailOn the basis of funding stage: Seed/early Late/mbo PipeThe Venture Capital firms in India can be categorized into the following four groups:1.

All-India DFI-sponsored VCFs such as Technology Development and InformationCompany of India Ltd. (TDICI) by ICICI, Risk Capital and Technology FinanceCorporation Ltd. (RCTFC) by IFCI and Risk Capital Fund by IDBI2.

ADVANTAGES AND DISADVANTAGES OF VENTURE CAPITAL Advantages Venture capital provides the funding that a company needs to expand its business. It also offers a number of value added services. The primary advantage of venture capital is that they allow entrepreneurs to build their company with OPM. The venture capitalist then hopes that your company increases in value and ultimately has a liquidity event (e.g. IPO or sells to another company) so that they can get a return on their invested capital. In addition to capital, venture capitalist can be an invaluable source of information, resources and contacts to help you be successful. More times than not, venture capitalists have experience building companies themselves so they can really help you think strategically about how to grow and be successful. In addition to being a source of funding, an advantage of venture capital is that a number of value-added services are provided to companies: Mentoring Alliances Facilitate exit

Disadvantages Most venture capitalists seek to realize their investment in a company in three to five years. If an entrepreneurs business plan contemplates a longer timetable before providing liquidity, venture capital may not be appropriate. Entrepreneurs should also consider: The disadvantage is that securing a deal with a VC can be a long and complex process. You'll be required to draw up a detailed business plan, including financial projections for which you're likely to need professional help. You may be able to get support from your local Business Link for this. Also, if you get through to the deal negotiation stage, you'll have to pay legal and accounting fees, whether or not you're successful in securing funds. Control Intrusion Pricing

The Venture Capital Investment Process

Development of Fund Concept
Secure Commitments from Investors Generate Deal Flow

Year 0

Closing of Fund
First Capital Call
Screen Business Plans Evaluate and Conduct Due Diligence Negotiate Deals and Staging Additional Capital Calls Invest Funds

2-3 years

Value Creation and Monitoring

4-5 years
Board service Assist with external relationships Performance evaluation and review Help arrange additional financing Recruitment management

2-3 years or more

Harvesting Investment
IPO Acquisition LBO Liquidation

Distributing Proceeds
Cash Public Shares Other

7-10 years plus extensions