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INTRODUCTION
A number of technocrats are seeking to set up shop on their own and
capitalize on opportunities. In the highly dynamic economic climate that
surrounds us today, few traditional business models may survive.
Countriesacrosstheglobearerealizingthatitisnottheconglomeratesand
thegiganticcorporationsthatfueleconomicgrowthanymore.Theessence
ofanyeconomytodayisthesmallandmediumenterprises.Forexample,in
the US, 50% of the exports are createdby companies with less than 20
employees and only 7% are createdby companies with 500 or more
employees. This growing trend canbe attributed to rapid advances in
technology in the last decade. Knowledge driven industries like InfoTech,
health-care,entertainmentandserviceshavebecomethecynosureofbourses
worldwide.Inthesesectors,itisinnovationandtechnicalcapabilitythatare
bigbusiness-drivers. This is aparadigm shift from the earlierphysical
productionandeconomiesofscalemodel.However,startinganenterprise
isnevereasy.Thereareanumberofparametersthatcontributetoitssuccess
ordownfall.Experience,integrity,prudenceandaclearunderstandingofthe
marketareamongthe soughtafterqualitiesofapromoter.However, there
are other factors, which lie beyond the control of the entrepreneur.
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Prominent among these is the timely infusion of funds. This is where the
venturecapitalistcomesin,withmoney,businesssenseandalotmore.
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WHAT IS VENTURE CAPITAL?
The venture capital investment helps for the growth of innovative
entrepreneurshipsinIndia.Venturecapitalhasdevelopedasaresultofthe
need toprovide non-conventional, risky finance to new venturesbasedon
innovativeentrepreneurship.Venturecapitalisaninvestmentintheformof
equity, quasi-equity and sometimes debt - straight or conditional, made in
new or untried concepts, promoted by a technically or professionally
qualifiedentrepreneur.Venturecapitalmeansriskcapital.Itreferstocapital
investment, both equity and debt, which carries substantial risk and
uncertainties. The risk envisaged maybe very high maybe so high as to
resultintotallossorverylesssoastoresultinhighgains
Venture capital means many things to manypeople. It is in fact nearly
impossibletocomeacrossonesingledefinitionoftheconcept.
Venture capital is moneyprovidedbyprofessionals who invest alongside
managementinyoung,rapidlygrowingcompaniesthathavethepotentialto
develop into significant economic contributors. Venture capital is an
important sourceofequity for start-upcompanies. Professionally managed
venture capital firms generally are private partnerships or closely-held
corporationsfundedbyprivateandpublicpensionfunds,endowmentfunds,
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foundations, corporations, wealthy individuals, foreign investors, and the
venturecapitaliststhemselves
Venturecapitalistsgenerally:
Financenewandrapidlygrowingcompanies
Purchaseequitysecurities
Assistinthedevelopmentofnewproductsorservices
Addvaluetothecompanythroughactiveparticipation
Takehigherriskswiththeexpectationofhigherrewards
Havealong-termorientation
When considering an investment, venture capitalists carefully screen the
technicalandbusinessmeritsof theproposedcompany.Venturecapitalists
onlyinvest inasmallpercentageof thebusinessestheyreviewandhavea
long-term perspective. They also actively work with the company's
management, especially with contacts and strategy formulation. .Venture
capitalistsmitigatetheriskofinvestingbydevelopingaportfolioofyoung
companies in a single venture fund. Many times they co-invest with other
professional venture capital firms. In addition, many venturepartnerships
managemultiplefundssimultaneously.Fordecades,venturecapitalistshave
nurtured the growth of America's high technology and entrepreneurial
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communities resulting in significantjob creation, economic growth and
international competitiveness. Companies such as Digital Equipment
Corporation, Apple, Federal Express, Compaq, Sun Microsystems, Intel,
Microsoft and Genetech are famous examples of companies that received
venturecapitalearlyintheirdevelopment.
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ADVANTAGE OF VENTURE CAPITAL
It injects long term equity finance which provides a solid capital base for
future growth.
The venture capitalist is a business partner, sharing both the risks and
rewards. Venture capitalists are rewarded by business success and the capital
gain.
The venture capitalist is able to provide practical advice and assistance to
the company based on past experience with other companies which were in
similar situations.
The venture capitalist also has a network of contacts in many areas that
can add value to the company, such as in recruiting key personnel, providing
contacts in international markets, introductions to strategic partners, and if
needed co-investments with other venture capital firms when additional
rounds of financing are required.
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TYPES OF VENTURE CAPITAL FIRMS
Depending on the business type, the venture capital firm differs.
For instance, if you're a startup internet company, funding
requests from a more manufacturing-focused firm will not be
effective. Doing some initial research on which firms to
approach will save time and effort. When approaching a Venture
Capital firm, consider their portfolio:
Business Cycle: Do they invest in budding or establishedbusinesses?
Industry: What is their industry focus? Investment: Is their typical investment sufficient for your
needs?
Location: Are they regional, national or international? Return: What is their expected return on inves tment? Involvement: What is their involvement level?
Targeting specific types of firms will yield the best results when
seeking Venture Capital financing. It is important to note that
many Venture Capital firms have diverse portfolios with a range
of clients. If this is the case, finding gaps in their portfolio is
one strategy that might succeed.
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FACTOS TO BE COSIDERED BY VENTURE CAPITALIST IN
SELECTION OF INVESTMENT PROPOSAL
Therearebasicallyfourkeyelementsinfinancingofventureswhichare
studiedindepthbytheventurecapitalists.Theseare:
1.Management-:Thestrength,expertise&unityofthekeypeopleonthe
boardbringsignificantcredibilitytothecompany.Themembersaretobe
mature,experiencedpossessingworkingknowledgeofbusinessandcapable
oftakingpotentiallyhighrisks.
2.Potential for capital gain-: Anaboveaveragerateofreturnofabout30-
40%isrequiredbyventurecapitalists.Therateofreturnalsodependsupon
thestageof thebusinesscyclewherefundsarebeingdeployed.Earlierthe
stage,higheristheriskandhencethereturn.
3. Realistic Financial Requirement and Projections- The venture
capitalist requires a realistic view about the present health of the
organization as well as future projections regarding scope, nature and
performanceofthecompanyintermsofscaleofoperations,operatingprofit
and further costs related to product development through Research &
Development.
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4.Owners Financial Stake-: Thefinancialresourcesowned&committed
by theentrepreneur/owner in thebusiness including thefunds investedby
family, friends and relativesplay a very important role in increasing the
viability of thebusiness. It is an important avenue where the venture
capitalistkeepsanopeneye.
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VENTURE CAPITAL- FINANCING STAGES
Seed up Capital
It is an idea or concept as opposed to a business. European
Venture Capital Association defines seed capital as the
financing of the initial product development or capital provided
to an entrepreneur to prove the feasibility of a project and to
qualify for start up capital.
The characteristics of the seed up capital may be enumerated as
follows:
Absence of ready product market Absence of complete management team Product/Process still in R&D stage Initial period/Licensing stage of technology transfer
Broadly speaking seed capital investment may take 7 to 10 years
to achieve realization. It is the earliest and therefore riskiest
stage of venture capital investment. The new technology and
innovations being attempted have equal chance of success and
failure. Such projects, particularly hi-tech, projects sink a lot of
cash and need a strong financial support for their adaptation,
commencement and eventual success. However, while the earliest
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stage of financing is fraught with risk, it also provides greater
potential for realizing significant gains in long term. Typically
seed enterprises lack asset base or track record to obtain finance
from conventional sources and are largely dependent upon
entrepreneurs personal resources. Seed capital is provided after
being satisfied that the entrepreneur has used up his own
resources and carried out his idea to a stage of acceptance and
has initiated research. The asset underlying the seed capital is
often technology or an idea as opposed to human assets (a good
management team) so often sought by venture capitalists .
Start up Capital
It is stage 2 in venture capital cycle and is distinguishable from
seed capital investments. An entrepreneur often needs finance
when the business is just starting. The start up stage involves
starting a new business. Here in the entrepreneur has moved
closer towards establishment of a going concern. Here in the
business concept has been fully investigated and the business
risk now becomes that of turning the concept into product.
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Start up capital is defined as: capital needed to finance the
product development, initial marketing and establishment of
product facility.
The characteristics of start-up capital are:-
i. Establishment of company or business- The company iseither being organized or is established recently. New
business activity could be based on experts, experience or a
spin-off from R&D.
ii. Establishment of most but not all the members of theteam- The skills and fitness to the job and situation of the
entrepreneurs team is an important factor for start up finance.
iii. Development of business plan or idea- The business planshould be fully developed yet the acceptability of the product by the
market is uncertain. The company has not yet started trading.
Early Stage Finance
It is also called first stage capital is provided to entrepreneur
who has a proven product, to start commercial production and
marketing, not covering market expansion, de-risking and
acquisition costs. At this stage the company passed into early
success stage of its life cycle. A proven management team is put
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into this stage, a product is established and an identifiable
market is being targeted. British Venture Capital Association
has vividly defined early stage finance as: Finance provided to
companies that have completed the product development stage
and require further funds to initiate commercial manufacturing
and sales but may not be generating profits. The characteristics
of early stage finance may be: -
Little or no sales revenue. Cash flow and profit still negative. A small but enthusiastic management team which consists
of people with technical and specialist background and with
little experience in the management of growing business.
Short term prospective for dramatic growth in revenue andprofits.
The early stage finance usually takes 4 to 6 years time horizon
to realization. Early stage finance is the earliest in which two of
the fundamentals of business are in place i.e. fully assembled
management team and a marketable product. A company needs
this round of finance because of any of the following reasons: -
Project overruns on product development.
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Initial loss after start up phase.The firm needs additional equity funds, which are not available
from other sources thus prompting venture capitalist that, have
financed the start up stage to provide further financing. The
management risk is shifted from factors internal to the firm (lack
of management, lack of product etc.) to factors external to the
firm (competitive pressures in sufficient will of financial
institutions to provide adequate capital, risk of product
obsolescence etc.) At this stage, capital needs, both fixed and
working capital needs are greatest. Further, since firms do not
have foundation of a trading record, finance will be difficult to
obtain and so Venture capital particularly equity investment
without associated debt burden is key to survival of the business.
The following risks are normally associated to firms at this
stage: -
a) The early stage firms may have drawn the attention of and
incurred the challenge of a larger competition.
b) There is a risk of product obsolescence. This is mo re so when
the firm is involved in high-tech business like computer,
information technology etc.
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Second Stage Finance
It is the capital provided for marketing and meeting the growing
working capital needs of an enterprise that has commenced the
production but does not have positive cash flows sufficient to
take care of its growing needs. Second stage finance, the second
trench of Early State Finance is also referred to as follow on
finance and can be defined as the provision of capital to the firm
which has previously been in receipt of external capital but
whose financial needs have subsequently exploded. This may be
second or even third injection of capital.
The characteristics of a second stage finance are:
A developed product on the market A full management team in place Sales revenue being generated from one or more products There are losses in the firm or at best there may be a break
even but the surplus generated is insufficient to meet the
firms needs.
Second round financing typically comes in after start up and
early stage funding and so have shorter time to maturity,
generally ranging from 3 to 7 years. This stage of financing has
both positive and negative reasons.
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Negative reasons include:
I. Cost overruns in market development.II. Failure of new product to live up to s ales forecast.
III. Need to re-position products through a new marketingcampaign.
IV. Need to re-define the product in the market place oncethe product deficiency is revealed
Positive reasons include:
I. Sales appear to be exceeding forecasts and the enterpriseneeds to acquire assets to gear up for production volumes
greater than forecasts.
II. High growth enterprises expand faster than their workingcapital permit, thus needing additional finance. Aim is to
provide working capital for initial expansion of an
enterprise to meet needs of increasing stocks and
receivables.
Later Stage Finance
It is called third stage capital is provided to an enterprise that
has established commercial production and basic marketing set-
up, typically for market expansion, acquisition, product
development etc. It is provided for market expansion of the
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enterprise. The enterprises eligible for this round of finance have
following characteristics.
I. Established business, having already passed the risky earlystage.
II. Expanding high yield, capital growth and goodprofitability.
III. Reputed market position and an established formalorganization structure.
Funds are utilized for further plant expansion, marketing,
working capital or development of improved products. Third
stage financing is a mix of equity with debt or subordinate debt.
As it is half way between equity and debt in US it is called
mezzanine finance. It is also called last rou nd of finance in run
up to the trade sale or public offer.
Venture capitalist s prefer later stage investment Vis a Vis early
stage investments, as the rate of failure in later stage financing is
low. It is because firms at this stage have a past performance
data, track record of management, established procedures of
financial control. The time horizon for realization is shorter,
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ranging from 3 to 5 years. This helps the venture capitalists to
balance their own portfolio of investment as it provides a
running yield to venture capitalists. Further the loan component
in third stage finance provides tax advantage and superior return
to the investors.
There are four sub divisions of later s tage finance.
Expansion / Development Finance Replacement Finance Buyout Financing Turnaround Finance
Expansion / Development FinanceAn enterprise established in a given market increases its profits
exponentially by achieving the economies of scale. This
expansion can be achieved either through an organic growth, that
is by expanding production capacity and setting up proper
distribution system or by way of acquisitions. Anyhow,
expansion needs finance and venture capitalists support both
organic growth as well as acquisitions for expansion.
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At this stage the real market feedback is used to analyze
competition. It may be found that the entrepreneur needs to
develop his managerial team for handling growth and managing a
larger business.
Realization horizon for expansion / development investment is
one to three years. It is favored by venture capitalist as it offers
higher rewards in shorter period with lower risk. Funds are
needed for new or larger factories and warehouses, production
capacities, developing improved or new products, developing
new markets or entering exports by enterprise with established
business that has already achieved break even and has started
making profits.
Replacement FinanceIt means substituting one shareholder for another, rather than
raising new capital resulting in the change of ownership pattern.
Venture capitalist purchase shares from the entrepreneurs and
their associates enabling them to reduce their shareholding in
unlisted companies. They also buy ordinary shares from non-
promoters and convert them to preference shares with fixed
dividend coupon. Later, on sale of the company or its listing on
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stock exchange, these are re-converted to ordinary shares. Thus
Venture capitalist makes a capital gain in a period of 1 to 5
years.
Buy - out / Buy - in FinancingIt is a recent development and a new form of investment by
venture capitalist. The funds provided to the current operating
management to acquire or purchase a significant share holding in
the business they manage are called management buyout.
Management Buy-in refers to the funds provided to enable a
manager or a group of managers from outside the company to
buy into it.
It is the most popular form of ventu re capital amongst later stage
financing. It is less risky as venture capitalist in invests in solid,
ongoing and more mature business. The funds are provided for
acquiring and revitalizing an existing product line or division of
a major business. MBO (Management buyout) has low risk as
enterprise to be bought have existed for some time besides
having positive cash flow to provide regular returns to the
venture capitalist, who structure their investment by judicious
combination of debt and equity. Of late there has been a gradual
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shift away from start up and early finance to wards MBO
opportunities. This shift is because of lower risk than start up
investments.
Turnaround FinanceIt is rare form later stage finance which most of the venture
capitalist avoid because of higher degree of risk. When an
established enterprise becomes sick, it needs finance as well as
management assistance foe a major restructuring to revitalize
growth of profits. Unquoted company at an early stage of
development often has higher debt than equity; its cash flows are
slowing down due to lack of managerial skill and inability to
exploit the market potential. The sick companies at the later
stages of development do not nor mally have high debt burden but
lack competent staff at various levels. Such enterprises are
compelled to relinquish control to new management. The venture
capitalist has to carry out the recovery process using hands on
management in 2 to 5 years. The risk profile and anticipated
rewards are akin to early stage inv estment.
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Bridge FinanceIt is the pre-public offering or pre-merger/acquisition finance to
a company. It is the last round of financing before the planned
exit. Venture capitalist help in building a stable and experienced
management team that will help the company in its initial public
offer. Most of the time bridge finance helps improves the
valuation of the company. Bridge finance often has a realization
period of 6 months to one year and hence the risk involved is
low. The bridge finance is paid back from the proceeds of the
public issue.
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VENTURE CAPITAL IN INDIA
Evolution of VC Industry in India
The first major analysis on risk capital for India was reported in 1983. It
indicated that new companies often confront serious barriers to entry into
capital market for raising equity finance which undermines their future
prospects of expansion and diversification. It also indicated that on the
whole there is a need to revive the equity cult among the masses by ensuring
competitive return on equity investment. This brought out the institutional
inadequacies with respect to the evolution of venture capital. In India, the
Industrial finance Corporation of India (IFCI) initiated the idea of VC when
it established the Risk Capital Foundation in 1975 to provide seed capital to
small and risky projects. However the concept of VC financing got statutory
recognition for the first time in the fiscal budget for the year 1986-87. The
Venture Capital companies operating at present can be divided into four
groups:
Promoted by AllIndia Development Financial Institutions Promoted by State Level Financial Institutions Promoted by Commercial banks Private venture Capitalist
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Promoted by all India development financial institutions
The IDBI started a VC fund in 1987 as per the long term fiscal policy of
government of India, with an initial capital of Rs. 10 cr which raised by
imposing a cess of 5% on all payments made for the import of technology
know- how projects requiring funds from rs.5 lacs to rs 2.5 cr were
considered for financing. Promoters contribution ranged from this fund was
available at a concessional interest rate of 9% (during gestation period)
which could be increased at later stages.
The ICICI provided the required impetus to VC activities in India, 1986; it
started providing VC finance in 1998 it promoted, along with the Unit Trust
of India (UTI) Technology Development and Information Company of India
(TDICI) as the first VC Company registered under the companies act, 1956.
The TDICI may provide financial assistance to venture capital undertakings
which are set up by technocrat entrepreneurs, or technology information and
guidance services.
The risk capital foundation established by the industrial finance corporation
of India (IFCI) in 1975, was converted in 1988 into the Risk Capital and
Technology Finance company (RCTC) as a subsidiary company of the ifci
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the rctc provides assistance in the form of conventional loans, interestfree
conditional loans on profit and risk sharing basis or equity participation in
extends financial support to high technology projects for technological up
gradations. The RCTC has been renamed as IFCI Venture Capital Funds
Ltd. (IVCF)
Promoted by State Level Financial InstitutionsIn India, the State Level financial institutions in some states such as Madhya
Pradesh, Gujarat, Uttar Pradesh, etc., have done an excellent job and have
provided VC to a small scale enterprises. Several successful entrepreneurs
have been the beneficiaries of the liberal funding environment. In 1990, the
Gujarat Industrial Investment Corporation, promoted the Gujarat Venture
Financial Ltd. (GVFL) along with other promoters such as the IDBI, the
World Bank, etc. The GVFL provides financial assistance to businesses in
the form of equity, conditional loans or income notes for technologies
development and innovative products. It also provides finance assistance to
entrepreneurs.
The government of Andhra Pradesh has also promoted the Andhra Pradesh
Industrial Development Corporation (APIDC) venture capital ltd. To provide
VC financing in Andhra Pradesh.
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Promoted by commercial banksCanbank Venture Capital Fund, State Bank Venture Capital Fund and
Grindlays bank Venture Capital Fund have been set up by the respective
commercial banks to undertake venture capital activities.
The State Bank Venture Capital Funds provides financial assistance for
bought out deal as well as new companies in the form of equity which it
disinvests after the commercialization of the project.
Canbank Venture Capital Fund provides financial assistance for proven but
yet to b commercially exploited technologies. It provides assistance both in
the form of equity and conditional loans.
Private Venture Capital FundsSeveral private sector venture capital funds have been established in India
such as the 20th Century Venture Capital Company, Indus Venture Capital
Fund, Infrastructure Leasing and Financial Services Ltd. Some of the
companies that have received funding through this route include:
Mastek, on of the oldest software house in India
Ruskan software, Pune based software consultancy
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SQL Star, Hyderabad-based training and software development
consultancy
Satyam infoway, the first private ISP in India
Hinditron, makers of embedded software
Selectia, provider of interactive software selector
Yantra, ITLInfosys US subsidiary, solution for supply chain management
Rediff on the Net, Indian website featuring electronic shopping, news, chat
etc.
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NEED FOR GROWTH OF VENTURE CAPITAL IN INDIA
In India, a revolution is ushering in a new economy, wherein entrepreneurs
mind set is taking a shift from risk adverse business to investment in new
ideas which involve high risk. The conventional industrial finance in India is
not of much help to these new emerging enterprises. Therefore there is a
need of financing mechanism that will fit with the requirement of
entrepreneurs and thus it needs venture capital industry to grow in India.
Few reasons for which active Venture Capital Industry is important for India
include:
Innovation : needs risk capital in a largely regulated, conservative,legacy financial system
Job creation: large pool of skilled graduates in the first and secondtier cities
Patient capital: Not flighty, unlike FIIs Creating new industry clusters: Media, Retail, Call Centers and
back office processing, trickling down to organized effort of support
services like office services, catering, transportation
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METHODS OF VENTURE FINANCING IN INDIA
Venture capital is typically available in three forms in India, they are:
Equity: All VCFs in India provide equity but generally their contribution
does not exceed 49 percent of the total equity capital. Thus, the effective
control and majority ownership of the firm remains with the entrepreneur.
They buy shares of an enterprise with an intention to ultimately sell them off
to make capital gains.
Conditional Loan: It is repayable in the form of a royalty after the venture
is able to generate sales. No interest is paid on such loans. In India, venture
capital firms charge royalty ranging between 2 to 15 percent; actual rate
depends on other factors of the venture such as gestation period, cost-flow
patterns, riskiness and other factors of the enterprise.
Income Note: It is a hybrid security which combines the features of both
conventional loan and conditional loan. The entrepreneur has to pay both
interest and royalty on sales, but at substantially low rates.
Other Financing Methods: A few venture capitalists, particularly in the
private sector, have started introducing innovative financial securities like
participating debentures, introduced by TCFC is an example.
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If we are struggling to find success in our quest for venture capital, maybe
we are looking in the wrong place. Venture capital is not for everybody. For
starters, venture capitalists tend to be very picky about where they invest.
They are looking for something to dump a lot of money into (usually no less
than $1 million) that will pour even more money right back at them in a
short amount of time (typically 3-7 years). We may be planning for a steady
growth rate as opposed to the booming, overnight success that venture
capitalists tend to gravitate toward. We may not be able to turn around as
large of a profit as they are looking for in quick enough time. We may not
need the amount of money that they offer or our business may simply not be
big enough.
Simply put, venture capital is not the right fit for our business and there are
plenty of other options available when it comes to finding capital.
Substitute in Early stage
1. Angels
Most venture capital funds will not consider investing in anything under $1
million to $2 million. Angels, however, are wealthy individuals who will
provide capital for a startup business. These investors have usually earned
their money as entrepreneurs and business managers and can serve as a
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prime resource for advice on top of capital. On the other hand, due to
typically limited resources, angels usually have a shorter investment horizon
than venture capitalists and tend to have less tolerance for losses.
2. Private Placement
An investment bank or agent may be able to raise equity for our company
by placing our unregistered securities with accredited investors. However,
you should be aware that the fees and expenses associated with this practice
are generally higher than those that come with venture and angel investors.
We will likely receive little or no business counsel from private investors
who also tend to have little tolerance for losses and under-performance.
3. Initial Public Offering
If we are somehow able to gain access to public equity markets than an
initial public offering (IPO) can be an effective way to raise capital. Keep in
mind that, while the public markets high valuations, abundant capital and
liquidity characteristics make it attractive, the transaction costs are high and
there are ongoing legal expenses associated with public disclosure
requirements.
Later Stage Financing
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1. Bootstrap Financing
This method is intended to develop a foundation for your business from
scratch. Financial management is essential to make this work. With
bootstrap financing youre building a business from nothing, which means
there is little to no margin for error in the finance department. Keep a rigid
account of all transactions and dont stray from your budget. A few different
methods of bootstrapping include:
Factoring-which generates cash flow through the sale of your accounts
receivable to a factor at a discounted price for cash.
Trade Credit-is an option if you are able to find a vendor or supplier that will
allow you to order goods on net 30, 60 or 90 day terms. If you can sell the
goods before the bill comes due then you have generated cash flow without
spending any money. Customers can pay you up front our services.
Leasing your equipment instead of purchasing it outright.
2. Fund from Operations
Look for ways to tweak your business in order to reduce the cash flowing
out and increase the cash flowing in. Funding found in business operations
come free of finance charges, can reduce future financing charges and can
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increase the value of your business. Month-by-month operating and cash
projections will show how well we have planned, how you can optimize the
elements of your business that generate cash and allow you to plan for new
investments and contingencies.
3. Licensing
Sell licenses to technology that is non-essential to our company or grant
limited licensing to essential technology that can be shared. Through
outlicensing we can generate revenue from up-front fees, access fees,
royalties or milestone payments.
4. Vendor Financing
Similar to the trade credit related to bootstrap financing, vendors can play a
big role in financing your new business. Establish vendor relationships
through our trade association and strike deals to offer their product and pay
for it at a date in the near future. Selling the product in time is up to us. In
hopes of keeping you as a customer, vendors may also be willing to work
out an arrangement if we need to finance equipment or supplies. Just make
sure to look for stability when you research a vendors credentials and
reputation before you sign any kind of agreement. And keep in mind that
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many major suppliers (GE Small Business Solutions, IBM Global
Financing) own financial companies that can help you.
5. Self Funding
Search between the couch cushions and in old jacket pockets for whatever
extra money you might have lying around and invest it into your business.
Obviously loose change will not be enough for extra business funding, but
take a look at your savings, investment portfolio, retirement funds and
employee buyout options from your previous employer. You wont have to
deal with any creditors or interest and the return on your investment could be
much higher. However, make sure that you consider the risks involved with
using your own resources. How competitive is the market that you are about
to enter into? How long will it take to pay yourself back? Will you be able to
pay yourself back? Can you afford to lose everything that you are investing
if your business were to fail? Its important that your projected returns are
more than enough to cover the risk that you will be taking.
6. SBIR and STTR Programs
Coordinated by the SBA, SBIR (Small Business Innovation Research) and
STTR (Small business Technology Transfer) programs offer competitive
federal funding awards to stimulate technological innovation and provide
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opportunities for small businesses. You can learn more about these programs
at SBIRworld.com.
7. State Funding
If youre not having any luck finding funding from the federal government
take a look at what your state has to offer. There is a list of links to state
development agencies that offer an array of grants and financial assistance
for small businessessonsAbout.com.
. 8. Community Banks
These smaller banks may have fewer products than their financial institution
counterparts but they offer a great opportunity to build banking relationships
and are generally more flexible with payment plans and interest rates.
9. Micro loans
These types of loans can range from hundreds of dollars to low six-figure
amounts. Although some lenders regard micro loans to be a waste of time
because the amount is so low, these can be a real boon for a startup business
or one that just needs to add some extra cash flow.
10. Finance Debt
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It may be more expensive in the long run than purchasing, but financing
your equipment, facilities and receivables can free up cash in the short term
or reduce the amount of money that you need to raise.
11. Friends
Ask your friends if they have any extra money that they would like to
invest. Assure them that you will pay them back with interest or offer them
stock options or a share of the profits in return.
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CONCLUSION
The study provides that the maturity if the still nascent Indian Venture
Capital market is imminent.
Venture Capitalists in Indian have notice of newer avenues and regions to
expand. Venture Capitalists have moved beyond IT service but are cautious
in exploring the right business model, for finding opportunities that generate
better returns for their investors.
In terms of impediments to expansion, few concerning factors to include;
Venture Capitalists unfavorable political and regulatory environment
compared to other countries, difficulty in achieving successful exists and
administrative delays in documentation and approval.
In spite of few non attracting factors, Indian opportunities are no doubt
promising which is evident by the large number of new entrants in past years
as well in coming days. Nonetheless the market is challenging for successful
investment.
Therefore Venture capitalists responses are upbeat about the attractiveness
of the India as a place to do the business.
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BIBLIOGRAPHY
WEBSITE:
www.sebi.gov.in
www.ivca.org
www.nenonline.org.
www.indiavca.org.
www.vcindia.com
www.ventureintelligence.in
www.vccircle.com
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