Venture Capital: Anjana Vivek

Venture Capital

Anjana Vivek [email protected] 1

What is VC?     

Investment in High risk projects High return potential projects Equity related instruments Unlisted companies

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Types of risk financiers    

Regular VCs Corporate VCs Angel investors Incubators

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Stages of VCs investment    

Seed Stage Early stage Later stage Turnaround

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US environment 

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Gap not met by debt recognised in late 1940s Industry - institutes initiatives Less of regulatory hurdles, Stanford, Harvard etc SBICs most successful Entrepreneriul spirit encouraged, ie failure not negative for next round of financing www.bizkul.com

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Other countries   

Israel - strong US tie Singapore - initiatives like NSTB Other countries in Europe, Asia trying to replicate success in US recognising the role played by VC investment in promoting growth of economy www.bizkul.com

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Changing trends 

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Successful entrepreneurs in US turned financiers, TiE Successful Indians Foreign VCs directly investing in India NRI entrepreneurs tapping Indian VC funds Banks and other institutions also looking at innovative ways to fund SMEs www.bizkul.com

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VC investment & exit Promoters with Project

Initial Meetings

Prelimnary Project Review by Venture Capitalist

Term Sheet Signed by Venture Capitalist & Promoters

Due Diligence Review of Project

Divestment & Exit from Project

Mentoring & Monitoring of Project

Investment made by Venture Capitalist in Project

Legal Documents /Agreement Signed

Venture Capitalist with Funds

Promoters

Venture Capitalist

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What a project must have  

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High upside potential Potential for extraordinary returns to investor Exit route plan

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VC looks for 

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Team – leadership, multidisciplinary, integrity, competence, domain knowledge Project, product, USP Market, opportunity, growth expected, barriers to competition Exit avenue www.bizkul.com

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Business Plans Business plans…  are to be forward looking, based on past knowledge of promoters and their work experience in the existing or new company  Must discount revenues expected, account for all expected costs and project expected cash flows www.bizkul.com

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Due diligence reviews       

Investment decision based on DDR Business Market Accounting Tax and Legal Technical HR www.bizkul.com

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Term Sheet 

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Term sheet is a letter of intent and may or may not be legally binding Term sheet terms give a summary of proposed principal terms of investment Term sheet is usually subject to satisfactory completion of due diligence reviews www.bizkul.com

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Term Sheet extract Amount of investment

Rs. 100 million

Type of security

Equity Shares

Pre-money valuation

Rs. 300 million

Post-money valuation

Rs. 400 million

Equity shareholding of the company post investment

Existing holders of equity

Stock options pool www.bizkul.com VC Investor

Limited

a b c d e f

15% 15% 10% 10% 5% 5% 15% 25%

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Post VC investment   

Is a partner in the project Mentors and monitors the project Hand holds through the investment

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Post VC investment 

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Networks on behalf of the investee, provides contacts, opens doors… flip side could be perceived as interfering, this depends on VC/entrepreneur relationship

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What a VC does 

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Each fund manager mentors only a handful of projects While fund size is big, no. of investments cannot be too much, hence project size increases Unlike debt/other investor, VC is not silent spectator,often is on the Board of investee company www.bizkul.com

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VC investment 

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Some VCs therefore have separate persons to look at investment and others to look at post investment, monitoring as the skill sets can be different Others have the same fund manager looking at project from day one of receiving proposal thru exit from investment www.bizkul.com

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Mature markets 

Different VCs may target different industries such as: – IT further split into niche areas – Agri related – Bioinformatics – Manufacturing - new materials – Service www.bizkul.com

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Future of VC in India 

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Industry has not grown to meet needs of a variety of entrepreneurs Too much money chasing too few projects, in select industries, not in the majority Move towards consortium financing, risks spread for a smaller piece of pie Many have dropped out and many coming in - churn is there, as players are to get established www.bizkul.com

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Future of VC in India  

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Potential is there, needs to be tapped Lack of appropriately trained persons to manage funds General public, including others like bank staff, CAs, legal advisors etc. not completely aware of finer points of such funding The entrepreneurial ecosystem is yet to develop, of course some cities like Bangalore are slowly having a variety of experts in this space www.bizkul.com

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Future VCs in India 

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There are limited takers for smaller projects Real early stage, high growth, high risk projects, finding it difficult to raise funding There are issues of exit and other related issues

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Future VCs in India 

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In the recent times some groups have showed interest in getting together those who need funds on the one hand and those who want to invest on the other, including high net worth individuals etc. This includes industry groups, academic institutions and other groups

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Evolving scenario 

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Review of projects includes going back to cash flow Gap between PAT and free cash flow analysed Detailed due diligence review Business perspective and not audit perspective Looking at the India + global story www.bizkul.com

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Evolving scenario 

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Are we going to see more global Indian brands in the future? Will VCs help us create these brands? Time will tell

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