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Venture Capital Financing

Complied By:Ritu Sharma Priyanka Madaan

Venture Capital represents financial investment in a highly risky projects with the objective of earning a high rate of return .There is significant scope for venture capital companies in our country because of increasing emergence of technocrat entrepreneurs who lacked capital to be risked. Such a high risk capital is provided by Venture Capital Funds in the form of long term equity finance with the hope of high rate of Return primarily in the form of Capital Gain.

The government of India has been instrumental in setting up of a number of new financial agencies to serve the need of the entrepreneurs in area of venture capital .These includes:-

1. 2. 3. 4.

Venture Capital Scheme of IDBI Venture Capital Scheme of ICICI Risk Capital and Technology Corporation Ltd.(RCTC) Infrastructure Leasing and Financial Services Ltd.(IF and FS) 5. Stock Holding Corporation of India Ltd.(SHCIL) to provide help in the transfer of shares and debentures. 6. The Credit Rating Information Services of India Ltd.(CRISIL) 7. The National Venture Fund for Software and IT industry(NVFSIT) launched in the Year 1999-2000.

Venture capital Financing


Features Selection Of Investment Theoretical Framework Investment Aftercare Portfolio Valuation Venture capital Financing Structural Aspects Exit SEBI Regulations: SEBI FVIs Regulations

Indian Scenario

1.Features of Venture Capital


Equity Participation. Long-term Investments. Hands-On Management High Risk Return Spectrum Wider Scope Venture capitalist combines the qualities of bankers, stock market investors and entrepreneur in one.

2.Selection Of Investment
Stage Of Financing Early Stage Financing Later stage Financing Conventional Venture Capital The First Chicago Method Revenue Multiplier Method Financial Instruments to Structure a Deal Debt Instruments Equity Instruments

Selection Of Investment

Methods to Evaluate Deals

2(1)Stage of financing

Early stage financing :Seed capital Start up Second round financing Later stage financing :Development capital Bridge Buyouts Turnouts

Structure a deal

Equity Instruments:Non Voting Equity Shares Deffered Ordinary Shares Preference Shares Participating Preference Shares Debt Instruments:Conditional Loans Conventional Loans Income Notes Partly Convertible DEbenture

Investment Aftercare

Hands on Nurturing Hands off nurturing Hands Holding Nurturing

VALUATION OF PORTFOLIO
EQUITY INVESTMENTS COST METHOD MARKET VALUE BASED METHOD QUOTED MARKET VALUE METHOD FAIR MARKET VALUE METHOD

DEBT INSTRUMENTS

CONVERTIBLE DEBT MARKET VALUE METHOD FAIR VALUE METHOD NON CONVERTIBLE DEBT FIXED INTEREST NON-CONVERTIBLE DEBT NON INTEREST NON-CONVERTIBLE DEBT HIGHLY LEVERAGED INVESTMENTS

STRUCTURAL ASPECTS
While deciding upon a structure,the objectives sought are: Limited liability of investors Simple operation of funds Tax transparency of the fund Maximum tax benefit to investors

Continue.
ALTERNATIVE FORMS IN WHICH VCIs CAN BE STRUCTURED LIMITED PARTNERSHIP INVESTMENT COMPANY INVESTMENT TRUST OFFSHORE INVESTMENT COMPANY OFFSHORE UNIT TRUST SMALL BUSINESS INVESTMENT COMPANY

EXIT
DISINVESTMENTS OF EQUITY GOING PUBLIC SALE OF SHARES TO ENTREPRENEURS TRADE SALES SELLING TO A NEW INVESTOR LIQUIDATION

SEBI FOREIGN VENTURE CAPITAL INVESTORS(FVCIs)REGULATIONS, 2000

REGISTRATION INVESTMENT CRITERIA GENERAL OBLIGATION AND RESPONSIBILITIES INSPECTION AND INVESTIGATION ACTION IN CASE OF DEFAULT SUSPENSION OF REGISTRATION CANCELLATION OF REGISTRATION

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