Venture capital

Presented by: Christina Rhea Mohit Infant Rahul

Venture capital
The term venture means course or proceeding ,the outcome of which is uncertain but which is attended by risk of danger of loss. The term capital means the resources used to start an enterprise or project Venture capital is the investment of long term equity finance where venture capitalists earn his return in the form of capital gain.

Dimensions of Venture capital

Equity participation Conventional loan Conditional loan Income notes

Raising Venture Capital

Venture capital represents financial investment in a risky proposition made in the hope of earning a high rate of return. Preparing a business plan Use simple and clear language Focus on four basic elements Give projection for about two to five years with emphasis of cash flows. Identify risks and develop a strategy to cope with the same Convince them that the management team is talented, experienced, committed, and determined.

Raising capital in international market

Globalization of capital market has given a strong basement for Indian firms, can raise capital from worlds local market: Euromarkets Foreign domestic markets Export credit schemes

Euromarkets
The term Euromarkets seems to be a misnomer because they do not have a physical location. You can raise capital in euro market through 1. Eurocurrency loans 2. Eurocurrency bonds 3. Global depository receipts

Foreign domestic market

A second way to raise money internationally is to sell securities directly in the domestic capital markets of foreign countries. US capital markets: the US capital market is the largest national capital market, and complemented by a very active derivatives market. other markets: Besides the US domestic capital market , Indians have tapped the domestic capital markets of other countries.

Export Credit Schemes

Export credit agencies have been established by the governments of major industrialised countries for financing export of capital goods and related technical service. Two kinds of export credit provided they are: Buyers credit Suppliers credit.

Financing infrastructure projects

Infrastructure includes the capital required to produce economic services from utilities and transport works . Good infrastructure helps in providing infrastructure services efficiently, promotes economic competitiveness, and supports high productivity. Poor infrastructure impedes economic growth and can be seriously detrimental to efficient use of scarce resources.

Characteristics of infrastructure projects

They are highly capital intensive. E.g. the construction of a road may cost at least 2000 million They involve huge sunk cost. E.g. when a car is purchased, it can subsequently be resold; however, it will probably not be resold for the original purchase price. The difference is the sunk cost. They have a long operating life. E.g. A road will be operational for at least 20years.

Basis for government role in planning, promoting and regulating the sector:

Essential nature of its services The social dimensions, size of individual projects

Typical project configuration

Implemented in Special purpose vehicle (SPV). Project sponsors take an equity stake in SPV. SPV enters into contractual agreements with project contractors, off takers, operators, government and project lenders. The Infrastructure projects are usually financed at a higher gearing ratio.

Key project parties

Project sponsors Project vehicle Project lenders EPC contractors O&M contractors Government

Provisions of key project contracts

Shareholders Agreement EPC Contract Projects Loan Agreements O &M contract

Financing a power project

Funding sources for a project at inception: Funding sources for a project during operations Financiers Products Project finance practices

Parties in a power project

Project company EPC contractors Project sponsors/shareholders Fuel suppliers Project lenders O&M contractors Government Electricity board

Financing telecommunication Projects

Project financiers in telecom evaluate the following: The equipment supply contract The business plan assumption The competitive environment Telecom regulations Private telecom projects operate under a license from Department of telecom and the projects framework is determined by the license

THE INDIAN VC AND PE INDUSTRY

The Indian VC industry is of relatively recent origin ICICI Ventures was the first VC Institution Much of the growth of the activity has been due to capital brought in by foreign investors. The investment preferences of VC investors in India have constantly evolved over the years

 Investor preference has drifted in favor of financing the expansion plan of firms already in operation as opposed to startups. In its formative years the Indian industry was characterized more by VC style investing in small early stage companies but recently PE type investments have become more common.

REGULATION OF VC INDUSTRY IN INDIA

The regulation of VC investment activity in India can be examined under two categories: (i) Regulation of VC funds registered in India (ii) Regulation of foreign VC funds Regulation of VC funds registered in India is done by SEBI

Important provisions of the SEBI Regulations

A venture Capital Fund may be established in the form of a trust or Company. In order to ensure that VCFs do not raise capital from the public, SEBI Regulations require that: That the Memorandum of Association of the Company precludes the VCF from inviting public capital subscriptions from the public That the minimum subscription per investor is Rs. 5 lakh and minimum size of the corpus for a VCF to commence business is Rs. 5 crore The VCF may not list its shares or units on a stock exchange for a period of three years from the date of issue

The regulations seek to ensure that VCFs invest in unlisted companies by stipulating that:
a VC undertaking is a domestic company whose shares are not listed on a recognized stock exchange in India. 75 % or more of the investible funds are invested in equity shares of unlisted Companies

VCFs are not allowed to invest more than 25% of the corpus in any one Company. They are also not allowed to invest in associated Companies

Regulation of VC funds Registered outside India

Route their investment through SEBI registered vehicles under SEBi Regulations 2000 Register investment funds in a tax efficient jurisdiction and bring capital into the target investee Company as FDI

Current Concerns of the Indian venture capital and PE (private equity) industry
Large amount of capital has been invested. Current slowdown in the global economy and its effect: 1.Investors have to stay for a longer time or they 2.Few industries appeared to be set for a fundamental transformation which also effects the venture capitals and private equity industries in India. 3.Decline in inflow of capital. 4.Close supervision and regulation in the near future. 5.Contract enforcement takes a lot of time, and uncertainty is there.