Venture capital- meaning, stages ad process

Venture capital- meaning, stages ad process

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  Venture Capital Stages andProcess By: Aditi Naik Salgaonkar 090-2017 Financial Services
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  Meaning of VentureCapital Venture “A project or activity that involves risk” Capital “Money or fund needed by business” Venture Capital “Capital invested in a project in which there is a substantial element of risk but have long-term growth potential”
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  Stages of VentureCapital Financing Venture Capital Financing Early stage financing Seed Capital Start-ups Second round Finance Later stage financing Developmental capital Expansion capital Buyouts Replacement capital Turnarounds At early stage VC evaluates: •Technology •Potential market •Capabilities of the promoter to implement project At later stages VC closely examines: •New markets •Track records of business •Track record of entrepreneur
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  A. Early Stagefinance 1. Seed Capital: • VC provide seed capital for translating idea into business preposition • Investor will investigate through market research, conduct technical and economic feasibility. 2. Start up capital: • Organisation is being set up • The idea or product gets its form • Entrepreneur should provide clear business plan and market analysis
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  3. Second roundfinance: • Refers to the stage where the product is launched in the market • Main goals - capture market share from competitors - minimize losses to reach break even
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  B. Later stagesof finance 1. Developmental Capital: Funds are required for – • Purchase of new equipment • Expansion of marketing and distributing facilities • Launching of new products to new regions etc. 2. Expansion Finance: Funds are required for – • New or larger factories and warehouses • Production capacities • New products and new markets • Purchasing existing business
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  3. Buyouts: Management buyout(MBO): • VCIs provide funds to enable the current management of a company to acquire majority of the shares from the existing shareholders and take control of the company • The buyers have more knowledge about the company and its true potential compared to seller Management buy-in (MBI): • Funds are provided to enable an outside group of managers to buy an existing company • Involves 3 parties: Mgt team, target co. and VCI. • Less popular since it is difficult for new management to assess the actual potential of the target company.
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  4. Replacement capital: •Funds provided to purchase existing shares in a company from other shareholders 5. Turnaround Finance: • When established enterprise becomes sick, it needs finance as well as management assistance for major restructuring to revitalize growth of profits
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  Process of venturefinancing 1. Deal Origination 2. Screening 3. Evaluation 4. Deal Negotiation 5. Post Investment Activity 6. Exit plan