BANK FINANCE TO ENTREPRENEURS

Saurabh Kanathia UBS MBA IB 2012-14

Bank Finance to Enterpreneurs 1

Venture capital
Long term equity finance Investing as opposed to banks who lend Looking for high gains Accepting high risks Can be involved in management of the invested firm

Bank Finance to Enterpreneurs

Structure of VCs
Mostly funds
Charge about 2% + success fee

Also some companies have partnership with the new startups

Bank Finance to Enterpreneurs

VC : Advantages
No fixed expense of debt servicing Financial flexibility Sharing of risk Value added investing
Attracting talent Networking with service providers/suppliers Accessing markets

Enhanced credibility with lenders

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VC : Disadvantages
Dilution of shareholding Increased 3rd party governance Increased controls Increased commitment to stated strategy

Bank Finance to Enterpreneurs

Types of VC
Early stage financing Seed capital or pre-start up or R&D Start up financing Second round financing Later stage financing Expansion Replacement Turnaround
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Valuation excersise
1. Get rid of scamsters 2. Hygiene factors beware of things that can shut down a business 3. Growth & industry considerations 4. Due diligence
1. Physical evaluation 2. Calling in the expert.

Bank Finance to Enterpreneurs

Agreement particulars

Amount and terms of investment. Dividend policy. Composition of the board of directors. Reporting - management reports, monthly accounts, annual budgets. Liquidity (exit) plans. Rights of sale Warranties. Matters requiring venture capitalist approval
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Problems
Locating players Concerns regarding exchange of info Larger companies look equally attractive with lesser risk Even listed securities are giving great returns

Bank Finance to Enterpreneurs

India centric problems

Indian VC not yet a popular asset class among institutional investors Exit challenges
Shallow markets Little M & A activity

Brand India, not strong beyond services

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Some VCs in India

Jumpstartup investing Draper Fisher sector specific Charles River Ventures Sequoia Capital Westbridge too big? ChrysCapital certainly too big

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Others
Banks
ICICI UTI SIDBI Canara bank Intel Motorola Nokia cisco
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Corporates

Lending strategy of banks

Business plan Financial statement Profile of promoter Asset base
Gross Net

Credit scoring
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How Banks cover risks

Collateral
Internal incl. a/c receivable External

Personal guarantees Debt covenants Short maturity debt

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Managing banks
Complete paperwork in time Submit financial statements as scheduled Route all transactions through bank Ask for extras free drafts, alerts, etc Exude confidence and well being Transmit good news Be proactive about inspections
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SMERA
Specifically for SMEs Joint initiative of:
SIDBI D&B CIBIL Other banks

Office currently only in Mumbai

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Rating process
SME contacts SMERA Questionnaire is filled Documents are submitted Site visit by SMERA representative Rating is announced 15 days after all documents are received

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Thank You

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