Download VTU (Visvesvaraya Technological University) MBA 2nd Semester (Second Semester) 17MBA26-Entrepreneurial Development Module 6 Venture capital, social and rural entrepreneurship Important Lecture Notes (MBA Study Material Notes)
social and rural
entrepreneurship
MODULE 6
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
Types of Angel investors
? Corporate angels: senior managers from corporate firms who are laid-off
with generous severance pay or who have taken early retirement they
may also get a senior management position.
? Entrepreneurial angel: they own and opearte highly successful businesses.
They usually participate in 4-5 companies. They take a seat in board
usually and do not show interest to manage these businesses.
? Enthusiastic angels: For them investment is a hobby. They work short hours
and are wealthy. They are aged and would like to be involved in deals.
They make small investments. They play no role in management and rarely
in board
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
Types of Angel investors
? Corporate angels: senior managers from corporate firms who are laid-off
with generous severance pay or who have taken early retirement they
may also get a senior management position.
? Entrepreneurial angel: they own and opearte highly successful businesses.
They usually participate in 4-5 companies. They take a seat in board
usually and do not show interest to manage these businesses.
? Enthusiastic angels: For them investment is a hobby. They work short hours
and are wealthy. They are aged and would like to be involved in deals.
They make small investments. They play no role in management and rarely
in board
? Micro management Angels: They are very serious investors.
They ve attained wealth by their own efforts. With their
experience they tend to impose tactics which worked for
them they usually do not assume management roles but like
to be on the board of directors.
? Professional Angels: professionals like doctors, lawyers etc.
they invest in companies that offer products/services where
they have some experience. They invest in several
companies at one time. They rarely seek
board/management roles
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
Types of Angel investors
? Corporate angels: senior managers from corporate firms who are laid-off
with generous severance pay or who have taken early retirement they
may also get a senior management position.
? Entrepreneurial angel: they own and opearte highly successful businesses.
They usually participate in 4-5 companies. They take a seat in board
usually and do not show interest to manage these businesses.
? Enthusiastic angels: For them investment is a hobby. They work short hours
and are wealthy. They are aged and would like to be involved in deals.
They make small investments. They play no role in management and rarely
in board
? Micro management Angels: They are very serious investors.
They ve attained wealth by their own efforts. With their
experience they tend to impose tactics which worked for
them they usually do not assume management roles but like
to be on the board of directors.
? Professional Angels: professionals like doctors, lawyers etc.
they invest in companies that offer products/services where
they have some experience. They invest in several
companies at one time. They rarely seek
board/management roles
Advantages of Angel investments
? They seek smaller deals
? Prefer start-ups or early stage companies helping the
organisation with seed capital.
? Invest in all industry sectors and show no sectoral preference
? Value adding partners of companies
? Geographically well dispersed
? They provide leveraging effect
? Cost effective; don?t charge high fees.
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
Types of Angel investors
? Corporate angels: senior managers from corporate firms who are laid-off
with generous severance pay or who have taken early retirement they
may also get a senior management position.
? Entrepreneurial angel: they own and opearte highly successful businesses.
They usually participate in 4-5 companies. They take a seat in board
usually and do not show interest to manage these businesses.
? Enthusiastic angels: For them investment is a hobby. They work short hours
and are wealthy. They are aged and would like to be involved in deals.
They make small investments. They play no role in management and rarely
in board
? Micro management Angels: They are very serious investors.
They ve attained wealth by their own efforts. With their
experience they tend to impose tactics which worked for
them they usually do not assume management roles but like
to be on the board of directors.
? Professional Angels: professionals like doctors, lawyers etc.
they invest in companies that offer products/services where
they have some experience. They invest in several
companies at one time. They rarely seek
board/management roles
Advantages of Angel investments
? They seek smaller deals
? Prefer start-ups or early stage companies helping the
organisation with seed capital.
? Invest in all industry sectors and show no sectoral preference
? Value adding partners of companies
? Geographically well dispersed
? They provide leveraging effect
? Cost effective; don?t charge high fees.
Disadvantages of Angel
investments
?Not so helpful when the company needs large
capital
?They want a say in the company which can be
sometimes detrimental
?When the going gets tough they can turnout to be
troublesome
?Finding quality angels is difficult.
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
Types of Angel investors
? Corporate angels: senior managers from corporate firms who are laid-off
with generous severance pay or who have taken early retirement they
may also get a senior management position.
? Entrepreneurial angel: they own and opearte highly successful businesses.
They usually participate in 4-5 companies. They take a seat in board
usually and do not show interest to manage these businesses.
? Enthusiastic angels: For them investment is a hobby. They work short hours
and are wealthy. They are aged and would like to be involved in deals.
They make small investments. They play no role in management and rarely
in board
? Micro management Angels: They are very serious investors.
They ve attained wealth by their own efforts. With their
experience they tend to impose tactics which worked for
them they usually do not assume management roles but like
to be on the board of directors.
? Professional Angels: professionals like doctors, lawyers etc.
they invest in companies that offer products/services where
they have some experience. They invest in several
companies at one time. They rarely seek
board/management roles
Advantages of Angel investments
? They seek smaller deals
? Prefer start-ups or early stage companies helping the
organisation with seed capital.
? Invest in all industry sectors and show no sectoral preference
? Value adding partners of companies
? Geographically well dispersed
? They provide leveraging effect
? Cost effective; don?t charge high fees.
Disadvantages of Angel
investments
?Not so helpful when the company needs large
capital
?They want a say in the company which can be
sometimes detrimental
?When the going gets tough they can turnout to be
troublesome
?Finding quality angels is difficult.
Venture Capital
? Risk finance for entrepreneurial growth oriented companies and
investments for medium and long term returns. it is a partnership with
the entrepreneur in which the investor can add value to the company
because of his knowledge and experience
? Valuable and powerful source of equity capital. They make funds
available for start-ups and small businesses that have the potential to
grow exceptionally.
? In most cases a degree of managerial and technical expertise is also
provided.
? It is generally provided to early-stage, high potential and growth
companies with a view to generate an appreciable returns.
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
Types of Angel investors
? Corporate angels: senior managers from corporate firms who are laid-off
with generous severance pay or who have taken early retirement they
may also get a senior management position.
? Entrepreneurial angel: they own and opearte highly successful businesses.
They usually participate in 4-5 companies. They take a seat in board
usually and do not show interest to manage these businesses.
? Enthusiastic angels: For them investment is a hobby. They work short hours
and are wealthy. They are aged and would like to be involved in deals.
They make small investments. They play no role in management and rarely
in board
? Micro management Angels: They are very serious investors.
They ve attained wealth by their own efforts. With their
experience they tend to impose tactics which worked for
them they usually do not assume management roles but like
to be on the board of directors.
? Professional Angels: professionals like doctors, lawyers etc.
they invest in companies that offer products/services where
they have some experience. They invest in several
companies at one time. They rarely seek
board/management roles
Advantages of Angel investments
? They seek smaller deals
? Prefer start-ups or early stage companies helping the
organisation with seed capital.
? Invest in all industry sectors and show no sectoral preference
? Value adding partners of companies
? Geographically well dispersed
? They provide leveraging effect
? Cost effective; don?t charge high fees.
Disadvantages of Angel
investments
?Not so helpful when the company needs large
capital
?They want a say in the company which can be
sometimes detrimental
?When the going gets tough they can turnout to be
troublesome
?Finding quality angels is difficult.
Venture Capital
? Risk finance for entrepreneurial growth oriented companies and
investments for medium and long term returns. it is a partnership with
the entrepreneur in which the investor can add value to the company
because of his knowledge and experience
? Valuable and powerful source of equity capital. They make funds
available for start-ups and small businesses that have the potential to
grow exceptionally.
? In most cases a degree of managerial and technical expertise is also
provided.
? It is generally provided to early-stage, high potential and growth
companies with a view to generate an appreciable returns.
Nature of venture capital
? Equity participation: it is actual or potential equity
participation through direct purchase of shares or convertible
debentures. The objective is to sell for capital gains once the
organisation becomes profitable.
? Long-term investment: it is long term, illiquid and not
encashable on demand. It requires attitude to wait for 5-10
years for appreciable profits
? Participation in management: continued participation in the
management of the business. This helps to protect investment.
The VC gives his inputs on technology, marketing, planning
and management skills to the venture
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
Types of Angel investors
? Corporate angels: senior managers from corporate firms who are laid-off
with generous severance pay or who have taken early retirement they
may also get a senior management position.
? Entrepreneurial angel: they own and opearte highly successful businesses.
They usually participate in 4-5 companies. They take a seat in board
usually and do not show interest to manage these businesses.
? Enthusiastic angels: For them investment is a hobby. They work short hours
and are wealthy. They are aged and would like to be involved in deals.
They make small investments. They play no role in management and rarely
in board
? Micro management Angels: They are very serious investors.
They ve attained wealth by their own efforts. With their
experience they tend to impose tactics which worked for
them they usually do not assume management roles but like
to be on the board of directors.
? Professional Angels: professionals like doctors, lawyers etc.
they invest in companies that offer products/services where
they have some experience. They invest in several
companies at one time. They rarely seek
board/management roles
Advantages of Angel investments
? They seek smaller deals
? Prefer start-ups or early stage companies helping the
organisation with seed capital.
? Invest in all industry sectors and show no sectoral preference
? Value adding partners of companies
? Geographically well dispersed
? They provide leveraging effect
? Cost effective; don?t charge high fees.
Disadvantages of Angel
investments
?Not so helpful when the company needs large
capital
?They want a say in the company which can be
sometimes detrimental
?When the going gets tough they can turnout to be
troublesome
?Finding quality angels is difficult.
Venture Capital
? Risk finance for entrepreneurial growth oriented companies and
investments for medium and long term returns. it is a partnership with
the entrepreneur in which the investor can add value to the company
because of his knowledge and experience
? Valuable and powerful source of equity capital. They make funds
available for start-ups and small businesses that have the potential to
grow exceptionally.
? In most cases a degree of managerial and technical expertise is also
provided.
? It is generally provided to early-stage, high potential and growth
companies with a view to generate an appreciable returns.
Nature of venture capital
? Equity participation: it is actual or potential equity
participation through direct purchase of shares or convertible
debentures. The objective is to sell for capital gains once the
organisation becomes profitable.
? Long-term investment: it is long term, illiquid and not
encashable on demand. It requires attitude to wait for 5-10
years for appreciable profits
? Participation in management: continued participation in the
management of the business. This helps to protect investment.
The VC gives his inputs on technology, marketing, planning
and management skills to the venture
? High degree of risk: Venture capital represents financial
investment in a high risk project with an objective of earning a
high rate of return.
? Achieve social objective: venture capital helps in acHieving
social objective of equality and development.
? Investment is illiquid: investor realizes his money only when his
shares are sold at a good gain. If venture loses money
investor gets nothing. Liquidity is very poor.
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
Types of Angel investors
? Corporate angels: senior managers from corporate firms who are laid-off
with generous severance pay or who have taken early retirement they
may also get a senior management position.
? Entrepreneurial angel: they own and opearte highly successful businesses.
They usually participate in 4-5 companies. They take a seat in board
usually and do not show interest to manage these businesses.
? Enthusiastic angels: For them investment is a hobby. They work short hours
and are wealthy. They are aged and would like to be involved in deals.
They make small investments. They play no role in management and rarely
in board
? Micro management Angels: They are very serious investors.
They ve attained wealth by their own efforts. With their
experience they tend to impose tactics which worked for
them they usually do not assume management roles but like
to be on the board of directors.
? Professional Angels: professionals like doctors, lawyers etc.
they invest in companies that offer products/services where
they have some experience. They invest in several
companies at one time. They rarely seek
board/management roles
Advantages of Angel investments
? They seek smaller deals
? Prefer start-ups or early stage companies helping the
organisation with seed capital.
? Invest in all industry sectors and show no sectoral preference
? Value adding partners of companies
? Geographically well dispersed
? They provide leveraging effect
? Cost effective; don?t charge high fees.
Disadvantages of Angel
investments
?Not so helpful when the company needs large
capital
?They want a say in the company which can be
sometimes detrimental
?When the going gets tough they can turnout to be
troublesome
?Finding quality angels is difficult.
Venture Capital
? Risk finance for entrepreneurial growth oriented companies and
investments for medium and long term returns. it is a partnership with
the entrepreneur in which the investor can add value to the company
because of his knowledge and experience
? Valuable and powerful source of equity capital. They make funds
available for start-ups and small businesses that have the potential to
grow exceptionally.
? In most cases a degree of managerial and technical expertise is also
provided.
? It is generally provided to early-stage, high potential and growth
companies with a view to generate an appreciable returns.
Nature of venture capital
? Equity participation: it is actual or potential equity
participation through direct purchase of shares or convertible
debentures. The objective is to sell for capital gains once the
organisation becomes profitable.
? Long-term investment: it is long term, illiquid and not
encashable on demand. It requires attitude to wait for 5-10
years for appreciable profits
? Participation in management: continued participation in the
management of the business. This helps to protect investment.
The VC gives his inputs on technology, marketing, planning
and management skills to the venture
? High degree of risk: Venture capital represents financial
investment in a high risk project with an objective of earning a
high rate of return.
? Achieve social objective: venture capital helps in acHieving
social objective of equality and development.
? Investment is illiquid: investor realizes his money only when his
shares are sold at a good gain. If venture loses money
investor gets nothing. Liquidity is very poor.
Need for venture capital
? Lack of capital for investment
? To enable start-up phase
? Acts as motivation to increase profits
? Experience of venture capitalist
? Involvement of venture capitalist
? Innovation
? Job creation
? Patient capital, not flighty
? Creating new industry clusters (media, retail, call centres, back office
processing, transportation, catering etc
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
Types of Angel investors
? Corporate angels: senior managers from corporate firms who are laid-off
with generous severance pay or who have taken early retirement they
may also get a senior management position.
? Entrepreneurial angel: they own and opearte highly successful businesses.
They usually participate in 4-5 companies. They take a seat in board
usually and do not show interest to manage these businesses.
? Enthusiastic angels: For them investment is a hobby. They work short hours
and are wealthy. They are aged and would like to be involved in deals.
They make small investments. They play no role in management and rarely
in board
? Micro management Angels: They are very serious investors.
They ve attained wealth by their own efforts. With their
experience they tend to impose tactics which worked for
them they usually do not assume management roles but like
to be on the board of directors.
? Professional Angels: professionals like doctors, lawyers etc.
they invest in companies that offer products/services where
they have some experience. They invest in several
companies at one time. They rarely seek
board/management roles
Advantages of Angel investments
? They seek smaller deals
? Prefer start-ups or early stage companies helping the
organisation with seed capital.
? Invest in all industry sectors and show no sectoral preference
? Value adding partners of companies
? Geographically well dispersed
? They provide leveraging effect
? Cost effective; don?t charge high fees.
Disadvantages of Angel
investments
?Not so helpful when the company needs large
capital
?They want a say in the company which can be
sometimes detrimental
?When the going gets tough they can turnout to be
troublesome
?Finding quality angels is difficult.
Venture Capital
? Risk finance for entrepreneurial growth oriented companies and
investments for medium and long term returns. it is a partnership with
the entrepreneur in which the investor can add value to the company
because of his knowledge and experience
? Valuable and powerful source of equity capital. They make funds
available for start-ups and small businesses that have the potential to
grow exceptionally.
? In most cases a degree of managerial and technical expertise is also
provided.
? It is generally provided to early-stage, high potential and growth
companies with a view to generate an appreciable returns.
Nature of venture capital
? Equity participation: it is actual or potential equity
participation through direct purchase of shares or convertible
debentures. The objective is to sell for capital gains once the
organisation becomes profitable.
? Long-term investment: it is long term, illiquid and not
encashable on demand. It requires attitude to wait for 5-10
years for appreciable profits
? Participation in management: continued participation in the
management of the business. This helps to protect investment.
The VC gives his inputs on technology, marketing, planning
and management skills to the venture
? High degree of risk: Venture capital represents financial
investment in a high risk project with an objective of earning a
high rate of return.
? Achieve social objective: venture capital helps in acHieving
social objective of equality and development.
? Investment is illiquid: investor realizes his money only when his
shares are sold at a good gain. If venture loses money
investor gets nothing. Liquidity is very poor.
Need for venture capital
? Lack of capital for investment
? To enable start-up phase
? Acts as motivation to increase profits
? Experience of venture capitalist
? Involvement of venture capitalist
? Innovation
? Job creation
? Patient capital, not flighty
? Creating new industry clusters (media, retail, call centres, back office
processing, transportation, catering etc
Forms/stages of venture capital
?Early stage financing (seed capital stage, start-
up stage, second round financing)
?Later sage financing (Expansion financing,
replacement financing, turnaround, bridge
finance, buy-outs, buy-ins)
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
Types of Angel investors
? Corporate angels: senior managers from corporate firms who are laid-off
with generous severance pay or who have taken early retirement they
may also get a senior management position.
? Entrepreneurial angel: they own and opearte highly successful businesses.
They usually participate in 4-5 companies. They take a seat in board
usually and do not show interest to manage these businesses.
? Enthusiastic angels: For them investment is a hobby. They work short hours
and are wealthy. They are aged and would like to be involved in deals.
They make small investments. They play no role in management and rarely
in board
? Micro management Angels: They are very serious investors.
They ve attained wealth by their own efforts. With their
experience they tend to impose tactics which worked for
them they usually do not assume management roles but like
to be on the board of directors.
? Professional Angels: professionals like doctors, lawyers etc.
they invest in companies that offer products/services where
they have some experience. They invest in several
companies at one time. They rarely seek
board/management roles
Advantages of Angel investments
? They seek smaller deals
? Prefer start-ups or early stage companies helping the
organisation with seed capital.
? Invest in all industry sectors and show no sectoral preference
? Value adding partners of companies
? Geographically well dispersed
? They provide leveraging effect
? Cost effective; don?t charge high fees.
Disadvantages of Angel
investments
?Not so helpful when the company needs large
capital
?They want a say in the company which can be
sometimes detrimental
?When the going gets tough they can turnout to be
troublesome
?Finding quality angels is difficult.
Venture Capital
? Risk finance for entrepreneurial growth oriented companies and
investments for medium and long term returns. it is a partnership with
the entrepreneur in which the investor can add value to the company
because of his knowledge and experience
? Valuable and powerful source of equity capital. They make funds
available for start-ups and small businesses that have the potential to
grow exceptionally.
? In most cases a degree of managerial and technical expertise is also
provided.
? It is generally provided to early-stage, high potential and growth
companies with a view to generate an appreciable returns.
Nature of venture capital
? Equity participation: it is actual or potential equity
participation through direct purchase of shares or convertible
debentures. The objective is to sell for capital gains once the
organisation becomes profitable.
? Long-term investment: it is long term, illiquid and not
encashable on demand. It requires attitude to wait for 5-10
years for appreciable profits
? Participation in management: continued participation in the
management of the business. This helps to protect investment.
The VC gives his inputs on technology, marketing, planning
and management skills to the venture
? High degree of risk: Venture capital represents financial
investment in a high risk project with an objective of earning a
high rate of return.
? Achieve social objective: venture capital helps in acHieving
social objective of equality and development.
? Investment is illiquid: investor realizes his money only when his
shares are sold at a good gain. If venture loses money
investor gets nothing. Liquidity is very poor.
Need for venture capital
? Lack of capital for investment
? To enable start-up phase
? Acts as motivation to increase profits
? Experience of venture capitalist
? Involvement of venture capitalist
? Innovation
? Job creation
? Patient capital, not flighty
? Creating new industry clusters (media, retail, call centres, back office
processing, transportation, catering etc
Forms/stages of venture capital
?Early stage financing (seed capital stage, start-
up stage, second round financing)
?Later sage financing (Expansion financing,
replacement financing, turnaround, bridge
finance, buy-outs, buy-ins)
Advantages & Disadvantages of
VC
Advantages
? Business consultations
? Management consultations
? Human resources
? Additional resources
Disadvantages
? Management position
? Equity position
? Decision-making
? Business plans at risk
? Funding plan in doses
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
Types of Angel investors
? Corporate angels: senior managers from corporate firms who are laid-off
with generous severance pay or who have taken early retirement they
may also get a senior management position.
? Entrepreneurial angel: they own and opearte highly successful businesses.
They usually participate in 4-5 companies. They take a seat in board
usually and do not show interest to manage these businesses.
? Enthusiastic angels: For them investment is a hobby. They work short hours
and are wealthy. They are aged and would like to be involved in deals.
They make small investments. They play no role in management and rarely
in board
? Micro management Angels: They are very serious investors.
They ve attained wealth by their own efforts. With their
experience they tend to impose tactics which worked for
them they usually do not assume management roles but like
to be on the board of directors.
? Professional Angels: professionals like doctors, lawyers etc.
they invest in companies that offer products/services where
they have some experience. They invest in several
companies at one time. They rarely seek
board/management roles
Advantages of Angel investments
? They seek smaller deals
? Prefer start-ups or early stage companies helping the
organisation with seed capital.
? Invest in all industry sectors and show no sectoral preference
? Value adding partners of companies
? Geographically well dispersed
? They provide leveraging effect
? Cost effective; don?t charge high fees.
Disadvantages of Angel
investments
?Not so helpful when the company needs large
capital
?They want a say in the company which can be
sometimes detrimental
?When the going gets tough they can turnout to be
troublesome
?Finding quality angels is difficult.
Venture Capital
? Risk finance for entrepreneurial growth oriented companies and
investments for medium and long term returns. it is a partnership with
the entrepreneur in which the investor can add value to the company
because of his knowledge and experience
? Valuable and powerful source of equity capital. They make funds
available for start-ups and small businesses that have the potential to
grow exceptionally.
? In most cases a degree of managerial and technical expertise is also
provided.
? It is generally provided to early-stage, high potential and growth
companies with a view to generate an appreciable returns.
Nature of venture capital
? Equity participation: it is actual or potential equity
participation through direct purchase of shares or convertible
debentures. The objective is to sell for capital gains once the
organisation becomes profitable.
? Long-term investment: it is long term, illiquid and not
encashable on demand. It requires attitude to wait for 5-10
years for appreciable profits
? Participation in management: continued participation in the
management of the business. This helps to protect investment.
The VC gives his inputs on technology, marketing, planning
and management skills to the venture
? High degree of risk: Venture capital represents financial
investment in a high risk project with an objective of earning a
high rate of return.
? Achieve social objective: venture capital helps in acHieving
social objective of equality and development.
? Investment is illiquid: investor realizes his money only when his
shares are sold at a good gain. If venture loses money
investor gets nothing. Liquidity is very poor.
Need for venture capital
? Lack of capital for investment
? To enable start-up phase
? Acts as motivation to increase profits
? Experience of venture capitalist
? Involvement of venture capitalist
? Innovation
? Job creation
? Patient capital, not flighty
? Creating new industry clusters (media, retail, call centres, back office
processing, transportation, catering etc
Forms/stages of venture capital
?Early stage financing (seed capital stage, start-
up stage, second round financing)
?Later sage financing (Expansion financing,
replacement financing, turnaround, bridge
finance, buy-outs, buy-ins)
Advantages & Disadvantages of
VC
Advantages
? Business consultations
? Management consultations
? Human resources
? Additional resources
Disadvantages
? Management position
? Equity position
? Decision-making
? Business plans at risk
? Funding plan in doses
Venture capital process
Process of entry for a VC (entry strategy)
- Deal origination: stream of deals is essential for VC business.
Referral system works. VC industry motivates individuals to come
up with proposals
- Screening: screening to shortlist on basis of familiar technology,
product, market, size, place, stage of finance etc
- Evaluation/due diligence: after initial screening due diligence is
done. VCs usually rely on subjective and comprehensive
evaluation as the projects are new and entrepreneurs
inexperienced. VCs evaluate the quality of entrepreneur before
evaluating technology, product, market etc. VCs ask for
business plan to evaluate risk and return.
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
Types of Angel investors
? Corporate angels: senior managers from corporate firms who are laid-off
with generous severance pay or who have taken early retirement they
may also get a senior management position.
? Entrepreneurial angel: they own and opearte highly successful businesses.
They usually participate in 4-5 companies. They take a seat in board
usually and do not show interest to manage these businesses.
? Enthusiastic angels: For them investment is a hobby. They work short hours
and are wealthy. They are aged and would like to be involved in deals.
They make small investments. They play no role in management and rarely
in board
? Micro management Angels: They are very serious investors.
They ve attained wealth by their own efforts. With their
experience they tend to impose tactics which worked for
them they usually do not assume management roles but like
to be on the board of directors.
? Professional Angels: professionals like doctors, lawyers etc.
they invest in companies that offer products/services where
they have some experience. They invest in several
companies at one time. They rarely seek
board/management roles
Advantages of Angel investments
? They seek smaller deals
? Prefer start-ups or early stage companies helping the
organisation with seed capital.
? Invest in all industry sectors and show no sectoral preference
? Value adding partners of companies
? Geographically well dispersed
? They provide leveraging effect
? Cost effective; don?t charge high fees.
Disadvantages of Angel
investments
?Not so helpful when the company needs large
capital
?They want a say in the company which can be
sometimes detrimental
?When the going gets tough they can turnout to be
troublesome
?Finding quality angels is difficult.
Venture Capital
? Risk finance for entrepreneurial growth oriented companies and
investments for medium and long term returns. it is a partnership with
the entrepreneur in which the investor can add value to the company
because of his knowledge and experience
? Valuable and powerful source of equity capital. They make funds
available for start-ups and small businesses that have the potential to
grow exceptionally.
? In most cases a degree of managerial and technical expertise is also
provided.
? It is generally provided to early-stage, high potential and growth
companies with a view to generate an appreciable returns.
Nature of venture capital
? Equity participation: it is actual or potential equity
participation through direct purchase of shares or convertible
debentures. The objective is to sell for capital gains once the
organisation becomes profitable.
? Long-term investment: it is long term, illiquid and not
encashable on demand. It requires attitude to wait for 5-10
years for appreciable profits
? Participation in management: continued participation in the
management of the business. This helps to protect investment.
The VC gives his inputs on technology, marketing, planning
and management skills to the venture
? High degree of risk: Venture capital represents financial
investment in a high risk project with an objective of earning a
high rate of return.
? Achieve social objective: venture capital helps in acHieving
social objective of equality and development.
? Investment is illiquid: investor realizes his money only when his
shares are sold at a good gain. If venture loses money
investor gets nothing. Liquidity is very poor.
Need for venture capital
? Lack of capital for investment
? To enable start-up phase
? Acts as motivation to increase profits
? Experience of venture capitalist
? Involvement of venture capitalist
? Innovation
? Job creation
? Patient capital, not flighty
? Creating new industry clusters (media, retail, call centres, back office
processing, transportation, catering etc
Forms/stages of venture capital
?Early stage financing (seed capital stage, start-
up stage, second round financing)
?Later sage financing (Expansion financing,
replacement financing, turnaround, bridge
finance, buy-outs, buy-ins)
Advantages & Disadvantages of
VC
Advantages
? Business consultations
? Management consultations
? Human resources
? Additional resources
Disadvantages
? Management position
? Equity position
? Decision-making
? Business plans at risk
? Funding plan in doses
Venture capital process
Process of entry for a VC (entry strategy)
- Deal origination: stream of deals is essential for VC business.
Referral system works. VC industry motivates individuals to come
up with proposals
- Screening: screening to shortlist on basis of familiar technology,
product, market, size, place, stage of finance etc
- Evaluation/due diligence: after initial screening due diligence is
done. VCs usually rely on subjective and comprehensive
evaluation as the projects are new and entrepreneurs
inexperienced. VCs evaluate the quality of entrepreneur before
evaluating technology, product, market etc. VCs ask for
business plan to evaluate risk and return.
Venture capital process
- Investment valuation: done to ascertain value
of the deal. It is done on the basis of projected
revenue and profitability, expected market
capitalization etc
- Deal structuring: terms of the deal, amount form
and price of investment. All other terms like
governance, shares, buy-back, sale, valuation
support etc will be worked out.
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
Types of Angel investors
? Corporate angels: senior managers from corporate firms who are laid-off
with generous severance pay or who have taken early retirement they
may also get a senior management position.
? Entrepreneurial angel: they own and opearte highly successful businesses.
They usually participate in 4-5 companies. They take a seat in board
usually and do not show interest to manage these businesses.
? Enthusiastic angels: For them investment is a hobby. They work short hours
and are wealthy. They are aged and would like to be involved in deals.
They make small investments. They play no role in management and rarely
in board
? Micro management Angels: They are very serious investors.
They ve attained wealth by their own efforts. With their
experience they tend to impose tactics which worked for
them they usually do not assume management roles but like
to be on the board of directors.
? Professional Angels: professionals like doctors, lawyers etc.
they invest in companies that offer products/services where
they have some experience. They invest in several
companies at one time. They rarely seek
board/management roles
Advantages of Angel investments
? They seek smaller deals
? Prefer start-ups or early stage companies helping the
organisation with seed capital.
? Invest in all industry sectors and show no sectoral preference
? Value adding partners of companies
? Geographically well dispersed
? They provide leveraging effect
? Cost effective; don?t charge high fees.
Disadvantages of Angel
investments
?Not so helpful when the company needs large
capital
?They want a say in the company which can be
sometimes detrimental
?When the going gets tough they can turnout to be
troublesome
?Finding quality angels is difficult.
Venture Capital
? Risk finance for entrepreneurial growth oriented companies and
investments for medium and long term returns. it is a partnership with
the entrepreneur in which the investor can add value to the company
because of his knowledge and experience
? Valuable and powerful source of equity capital. They make funds
available for start-ups and small businesses that have the potential to
grow exceptionally.
? In most cases a degree of managerial and technical expertise is also
provided.
? It is generally provided to early-stage, high potential and growth
companies with a view to generate an appreciable returns.
Nature of venture capital
? Equity participation: it is actual or potential equity
participation through direct purchase of shares or convertible
debentures. The objective is to sell for capital gains once the
organisation becomes profitable.
? Long-term investment: it is long term, illiquid and not
encashable on demand. It requires attitude to wait for 5-10
years for appreciable profits
? Participation in management: continued participation in the
management of the business. This helps to protect investment.
The VC gives his inputs on technology, marketing, planning
and management skills to the venture
? High degree of risk: Venture capital represents financial
investment in a high risk project with an objective of earning a
high rate of return.
? Achieve social objective: venture capital helps in acHieving
social objective of equality and development.
? Investment is illiquid: investor realizes his money only when his
shares are sold at a good gain. If venture loses money
investor gets nothing. Liquidity is very poor.
Need for venture capital
? Lack of capital for investment
? To enable start-up phase
? Acts as motivation to increase profits
? Experience of venture capitalist
? Involvement of venture capitalist
? Innovation
? Job creation
? Patient capital, not flighty
? Creating new industry clusters (media, retail, call centres, back office
processing, transportation, catering etc
Forms/stages of venture capital
?Early stage financing (seed capital stage, start-
up stage, second round financing)
?Later sage financing (Expansion financing,
replacement financing, turnaround, bridge
finance, buy-outs, buy-ins)
Advantages & Disadvantages of
VC
Advantages
? Business consultations
? Management consultations
? Human resources
? Additional resources
Disadvantages
? Management position
? Equity position
? Decision-making
? Business plans at risk
? Funding plan in doses
Venture capital process
Process of entry for a VC (entry strategy)
- Deal origination: stream of deals is essential for VC business.
Referral system works. VC industry motivates individuals to come
up with proposals
- Screening: screening to shortlist on basis of familiar technology,
product, market, size, place, stage of finance etc
- Evaluation/due diligence: after initial screening due diligence is
done. VCs usually rely on subjective and comprehensive
evaluation as the projects are new and entrepreneurs
inexperienced. VCs evaluate the quality of entrepreneur before
evaluating technology, product, market etc. VCs ask for
business plan to evaluate risk and return.
Venture capital process
- Investment valuation: done to ascertain value
of the deal. It is done on the basis of projected
revenue and profitability, expected market
capitalization etc
- Deal structuring: terms of the deal, amount form
and price of investment. All other terms like
governance, shares, buy-back, sale, valuation
support etc will be worked out.
Venture Capital process:
Process of exit for a VC (exit strategy)
Method by which a VC intends to cash-out or get out of the
investment is called the exit strategy.
It is not easy to cashout as the venture is not listed and is in private
domain.
Some of the exit routes are:
1. Initial public offer:
2. Acquisition by another company
3. Purchase by investee company
4. Purcase of VC share by 3P
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
Types of Angel investors
? Corporate angels: senior managers from corporate firms who are laid-off
with generous severance pay or who have taken early retirement they
may also get a senior management position.
? Entrepreneurial angel: they own and opearte highly successful businesses.
They usually participate in 4-5 companies. They take a seat in board
usually and do not show interest to manage these businesses.
? Enthusiastic angels: For them investment is a hobby. They work short hours
and are wealthy. They are aged and would like to be involved in deals.
They make small investments. They play no role in management and rarely
in board
? Micro management Angels: They are very serious investors.
They ve attained wealth by their own efforts. With their
experience they tend to impose tactics which worked for
them they usually do not assume management roles but like
to be on the board of directors.
? Professional Angels: professionals like doctors, lawyers etc.
they invest in companies that offer products/services where
they have some experience. They invest in several
companies at one time. They rarely seek
board/management roles
Advantages of Angel investments
? They seek smaller deals
? Prefer start-ups or early stage companies helping the
organisation with seed capital.
? Invest in all industry sectors and show no sectoral preference
? Value adding partners of companies
? Geographically well dispersed
? They provide leveraging effect
? Cost effective; don?t charge high fees.
Disadvantages of Angel
investments
?Not so helpful when the company needs large
capital
?They want a say in the company which can be
sometimes detrimental
?When the going gets tough they can turnout to be
troublesome
?Finding quality angels is difficult.
Venture Capital
? Risk finance for entrepreneurial growth oriented companies and
investments for medium and long term returns. it is a partnership with
the entrepreneur in which the investor can add value to the company
because of his knowledge and experience
? Valuable and powerful source of equity capital. They make funds
available for start-ups and small businesses that have the potential to
grow exceptionally.
? In most cases a degree of managerial and technical expertise is also
provided.
? It is generally provided to early-stage, high potential and growth
companies with a view to generate an appreciable returns.
Nature of venture capital
? Equity participation: it is actual or potential equity
participation through direct purchase of shares or convertible
debentures. The objective is to sell for capital gains once the
organisation becomes profitable.
? Long-term investment: it is long term, illiquid and not
encashable on demand. It requires attitude to wait for 5-10
years for appreciable profits
? Participation in management: continued participation in the
management of the business. This helps to protect investment.
The VC gives his inputs on technology, marketing, planning
and management skills to the venture
? High degree of risk: Venture capital represents financial
investment in a high risk project with an objective of earning a
high rate of return.
? Achieve social objective: venture capital helps in acHieving
social objective of equality and development.
? Investment is illiquid: investor realizes his money only when his
shares are sold at a good gain. If venture loses money
investor gets nothing. Liquidity is very poor.
Need for venture capital
? Lack of capital for investment
? To enable start-up phase
? Acts as motivation to increase profits
? Experience of venture capitalist
? Involvement of venture capitalist
? Innovation
? Job creation
? Patient capital, not flighty
? Creating new industry clusters (media, retail, call centres, back office
processing, transportation, catering etc
Forms/stages of venture capital
?Early stage financing (seed capital stage, start-
up stage, second round financing)
?Later sage financing (Expansion financing,
replacement financing, turnaround, bridge
finance, buy-outs, buy-ins)
Advantages & Disadvantages of
VC
Advantages
? Business consultations
? Management consultations
? Human resources
? Additional resources
Disadvantages
? Management position
? Equity position
? Decision-making
? Business plans at risk
? Funding plan in doses
Venture capital process
Process of entry for a VC (entry strategy)
- Deal origination: stream of deals is essential for VC business.
Referral system works. VC industry motivates individuals to come
up with proposals
- Screening: screening to shortlist on basis of familiar technology,
product, market, size, place, stage of finance etc
- Evaluation/due diligence: after initial screening due diligence is
done. VCs usually rely on subjective and comprehensive
evaluation as the projects are new and entrepreneurs
inexperienced. VCs evaluate the quality of entrepreneur before
evaluating technology, product, market etc. VCs ask for
business plan to evaluate risk and return.
Venture capital process
- Investment valuation: done to ascertain value
of the deal. It is done on the basis of projected
revenue and profitability, expected market
capitalization etc
- Deal structuring: terms of the deal, amount form
and price of investment. All other terms like
governance, shares, buy-back, sale, valuation
support etc will be worked out.
Venture Capital process:
Process of exit for a VC (exit strategy)
Method by which a VC intends to cash-out or get out of the
investment is called the exit strategy.
It is not easy to cashout as the venture is not listed and is in private
domain.
Some of the exit routes are:
1. Initial public offer:
2. Acquisition by another company
3. Purchase by investee company
4. Purcase of VC share by 3P
Locating VC
? VCs tend to specialize on geography, industry, products and
services. Look for VCs on that basis
? Carefully research for such VCs. Look up in the VC association
directories. Lists available with names, addresses, types of
businesses, restrictions
? Due diligence to check reputation and ethics. Contacts other
investees to check. Check their credit history and financial
strength. Check their goals culture and professionalism
? Don?t get discouraged if one VC rejects the proposal. It may
be more to do with their style and approach rather than
valuation of one?s venture. Look for the best-fit
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
Types of Angel investors
? Corporate angels: senior managers from corporate firms who are laid-off
with generous severance pay or who have taken early retirement they
may also get a senior management position.
? Entrepreneurial angel: they own and opearte highly successful businesses.
They usually participate in 4-5 companies. They take a seat in board
usually and do not show interest to manage these businesses.
? Enthusiastic angels: For them investment is a hobby. They work short hours
and are wealthy. They are aged and would like to be involved in deals.
They make small investments. They play no role in management and rarely
in board
? Micro management Angels: They are very serious investors.
They ve attained wealth by their own efforts. With their
experience they tend to impose tactics which worked for
them they usually do not assume management roles but like
to be on the board of directors.
? Professional Angels: professionals like doctors, lawyers etc.
they invest in companies that offer products/services where
they have some experience. They invest in several
companies at one time. They rarely seek
board/management roles
Advantages of Angel investments
? They seek smaller deals
? Prefer start-ups or early stage companies helping the
organisation with seed capital.
? Invest in all industry sectors and show no sectoral preference
? Value adding partners of companies
? Geographically well dispersed
? They provide leveraging effect
? Cost effective; don?t charge high fees.
Disadvantages of Angel
investments
?Not so helpful when the company needs large
capital
?They want a say in the company which can be
sometimes detrimental
?When the going gets tough they can turnout to be
troublesome
?Finding quality angels is difficult.
Venture Capital
? Risk finance for entrepreneurial growth oriented companies and
investments for medium and long term returns. it is a partnership with
the entrepreneur in which the investor can add value to the company
because of his knowledge and experience
? Valuable and powerful source of equity capital. They make funds
available for start-ups and small businesses that have the potential to
grow exceptionally.
? In most cases a degree of managerial and technical expertise is also
provided.
? It is generally provided to early-stage, high potential and growth
companies with a view to generate an appreciable returns.
Nature of venture capital
? Equity participation: it is actual or potential equity
participation through direct purchase of shares or convertible
debentures. The objective is to sell for capital gains once the
organisation becomes profitable.
? Long-term investment: it is long term, illiquid and not
encashable on demand. It requires attitude to wait for 5-10
years for appreciable profits
? Participation in management: continued participation in the
management of the business. This helps to protect investment.
The VC gives his inputs on technology, marketing, planning
and management skills to the venture
? High degree of risk: Venture capital represents financial
investment in a high risk project with an objective of earning a
high rate of return.
? Achieve social objective: venture capital helps in acHieving
social objective of equality and development.
? Investment is illiquid: investor realizes his money only when his
shares are sold at a good gain. If venture loses money
investor gets nothing. Liquidity is very poor.
Need for venture capital
? Lack of capital for investment
? To enable start-up phase
? Acts as motivation to increase profits
? Experience of venture capitalist
? Involvement of venture capitalist
? Innovation
? Job creation
? Patient capital, not flighty
? Creating new industry clusters (media, retail, call centres, back office
processing, transportation, catering etc
Forms/stages of venture capital
?Early stage financing (seed capital stage, start-
up stage, second round financing)
?Later sage financing (Expansion financing,
replacement financing, turnaround, bridge
finance, buy-outs, buy-ins)
Advantages & Disadvantages of
VC
Advantages
? Business consultations
? Management consultations
? Human resources
? Additional resources
Disadvantages
? Management position
? Equity position
? Decision-making
? Business plans at risk
? Funding plan in doses
Venture capital process
Process of entry for a VC (entry strategy)
- Deal origination: stream of deals is essential for VC business.
Referral system works. VC industry motivates individuals to come
up with proposals
- Screening: screening to shortlist on basis of familiar technology,
product, market, size, place, stage of finance etc
- Evaluation/due diligence: after initial screening due diligence is
done. VCs usually rely on subjective and comprehensive
evaluation as the projects are new and entrepreneurs
inexperienced. VCs evaluate the quality of entrepreneur before
evaluating technology, product, market etc. VCs ask for
business plan to evaluate risk and return.
Venture capital process
- Investment valuation: done to ascertain value
of the deal. It is done on the basis of projected
revenue and profitability, expected market
capitalization etc
- Deal structuring: terms of the deal, amount form
and price of investment. All other terms like
governance, shares, buy-back, sale, valuation
support etc will be worked out.
Venture Capital process:
Process of exit for a VC (exit strategy)
Method by which a VC intends to cash-out or get out of the
investment is called the exit strategy.
It is not easy to cashout as the venture is not listed and is in private
domain.
Some of the exit routes are:
1. Initial public offer:
2. Acquisition by another company
3. Purchase by investee company
4. Purcase of VC share by 3P
Locating VC
? VCs tend to specialize on geography, industry, products and
services. Look for VCs on that basis
? Carefully research for such VCs. Look up in the VC association
directories. Lists available with names, addresses, types of
businesses, restrictions
? Due diligence to check reputation and ethics. Contacts other
investees to check. Check their credit history and financial
strength. Check their goals culture and professionalism
? Don?t get discouraged if one VC rejects the proposal. It may
be more to do with their style and approach rather than
valuation of one?s venture. Look for the best-fit
Approaching venture capitalist
? Explain why the business idea works through a face-to-face meeting.
Everyone has ideas but convincing the VC about workability is important
? Know the product inside-out. One should be able to explain the product
in an hour long speech as well as in an elevator speech
? Differentiate the product from what is available in the market and catch
the interest of the VC
? Determine how the product is able to create a new trend. Determine
how the new product is going to make a difference in everyday lives of
consumer
? Make a proper and professional contact with the VC. Use contacts,
online network will help. Avoid walking in, sending unsolicited mails/calls
may not help much
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
Types of Angel investors
? Corporate angels: senior managers from corporate firms who are laid-off
with generous severance pay or who have taken early retirement they
may also get a senior management position.
? Entrepreneurial angel: they own and opearte highly successful businesses.
They usually participate in 4-5 companies. They take a seat in board
usually and do not show interest to manage these businesses.
? Enthusiastic angels: For them investment is a hobby. They work short hours
and are wealthy. They are aged and would like to be involved in deals.
They make small investments. They play no role in management and rarely
in board
? Micro management Angels: They are very serious investors.
They ve attained wealth by their own efforts. With their
experience they tend to impose tactics which worked for
them they usually do not assume management roles but like
to be on the board of directors.
? Professional Angels: professionals like doctors, lawyers etc.
they invest in companies that offer products/services where
they have some experience. They invest in several
companies at one time. They rarely seek
board/management roles
Advantages of Angel investments
? They seek smaller deals
? Prefer start-ups or early stage companies helping the
organisation with seed capital.
? Invest in all industry sectors and show no sectoral preference
? Value adding partners of companies
? Geographically well dispersed
? They provide leveraging effect
? Cost effective; don?t charge high fees.
Disadvantages of Angel
investments
?Not so helpful when the company needs large
capital
?They want a say in the company which can be
sometimes detrimental
?When the going gets tough they can turnout to be
troublesome
?Finding quality angels is difficult.
Venture Capital
? Risk finance for entrepreneurial growth oriented companies and
investments for medium and long term returns. it is a partnership with
the entrepreneur in which the investor can add value to the company
because of his knowledge and experience
? Valuable and powerful source of equity capital. They make funds
available for start-ups and small businesses that have the potential to
grow exceptionally.
? In most cases a degree of managerial and technical expertise is also
provided.
? It is generally provided to early-stage, high potential and growth
companies with a view to generate an appreciable returns.
Nature of venture capital
? Equity participation: it is actual or potential equity
participation through direct purchase of shares or convertible
debentures. The objective is to sell for capital gains once the
organisation becomes profitable.
? Long-term investment: it is long term, illiquid and not
encashable on demand. It requires attitude to wait for 5-10
years for appreciable profits
? Participation in management: continued participation in the
management of the business. This helps to protect investment.
The VC gives his inputs on technology, marketing, planning
and management skills to the venture
? High degree of risk: Venture capital represents financial
investment in a high risk project with an objective of earning a
high rate of return.
? Achieve social objective: venture capital helps in acHieving
social objective of equality and development.
? Investment is illiquid: investor realizes his money only when his
shares are sold at a good gain. If venture loses money
investor gets nothing. Liquidity is very poor.
Need for venture capital
? Lack of capital for investment
? To enable start-up phase
? Acts as motivation to increase profits
? Experience of venture capitalist
? Involvement of venture capitalist
? Innovation
? Job creation
? Patient capital, not flighty
? Creating new industry clusters (media, retail, call centres, back office
processing, transportation, catering etc
Forms/stages of venture capital
?Early stage financing (seed capital stage, start-
up stage, second round financing)
?Later sage financing (Expansion financing,
replacement financing, turnaround, bridge
finance, buy-outs, buy-ins)
Advantages & Disadvantages of
VC
Advantages
? Business consultations
? Management consultations
? Human resources
? Additional resources
Disadvantages
? Management position
? Equity position
? Decision-making
? Business plans at risk
? Funding plan in doses
Venture capital process
Process of entry for a VC (entry strategy)
- Deal origination: stream of deals is essential for VC business.
Referral system works. VC industry motivates individuals to come
up with proposals
- Screening: screening to shortlist on basis of familiar technology,
product, market, size, place, stage of finance etc
- Evaluation/due diligence: after initial screening due diligence is
done. VCs usually rely on subjective and comprehensive
evaluation as the projects are new and entrepreneurs
inexperienced. VCs evaluate the quality of entrepreneur before
evaluating technology, product, market etc. VCs ask for
business plan to evaluate risk and return.
Venture capital process
- Investment valuation: done to ascertain value
of the deal. It is done on the basis of projected
revenue and profitability, expected market
capitalization etc
- Deal structuring: terms of the deal, amount form
and price of investment. All other terms like
governance, shares, buy-back, sale, valuation
support etc will be worked out.
Venture Capital process:
Process of exit for a VC (exit strategy)
Method by which a VC intends to cash-out or get out of the
investment is called the exit strategy.
It is not easy to cashout as the venture is not listed and is in private
domain.
Some of the exit routes are:
1. Initial public offer:
2. Acquisition by another company
3. Purchase by investee company
4. Purcase of VC share by 3P
Locating VC
? VCs tend to specialize on geography, industry, products and
services. Look for VCs on that basis
? Carefully research for such VCs. Look up in the VC association
directories. Lists available with names, addresses, types of
businesses, restrictions
? Due diligence to check reputation and ethics. Contacts other
investees to check. Check their credit history and financial
strength. Check their goals culture and professionalism
? Don?t get discouraged if one VC rejects the proposal. It may
be more to do with their style and approach rather than
valuation of one?s venture. Look for the best-fit
Approaching venture capitalist
? Explain why the business idea works through a face-to-face meeting.
Everyone has ideas but convincing the VC about workability is important
? Know the product inside-out. One should be able to explain the product
in an hour long speech as well as in an elevator speech
? Differentiate the product from what is available in the market and catch
the interest of the VC
? Determine how the product is able to create a new trend. Determine
how the new product is going to make a difference in everyday lives of
consumer
? Make a proper and professional contact with the VC. Use contacts,
online network will help. Avoid walking in, sending unsolicited mails/calls
may not help much
Approaching venture capitalist
? Have a airtight, professional business plan with rigor detailing all
strategies including financials
? Find the right VC firm. They specialize in terms of industry, size
etc. look for a VC that fits one?s venture
? Know the range of investment the VCs are capable of making.
? VC funding is all negotiation
1. never let them think you have no option
2. VCs sometimes reject and wait for weeks just as a strategy
3. Ask the broker for concessions after into the project for months.
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
Types of Angel investors
? Corporate angels: senior managers from corporate firms who are laid-off
with generous severance pay or who have taken early retirement they
may also get a senior management position.
? Entrepreneurial angel: they own and opearte highly successful businesses.
They usually participate in 4-5 companies. They take a seat in board
usually and do not show interest to manage these businesses.
? Enthusiastic angels: For them investment is a hobby. They work short hours
and are wealthy. They are aged and would like to be involved in deals.
They make small investments. They play no role in management and rarely
in board
? Micro management Angels: They are very serious investors.
They ve attained wealth by their own efforts. With their
experience they tend to impose tactics which worked for
them they usually do not assume management roles but like
to be on the board of directors.
? Professional Angels: professionals like doctors, lawyers etc.
they invest in companies that offer products/services where
they have some experience. They invest in several
companies at one time. They rarely seek
board/management roles
Advantages of Angel investments
? They seek smaller deals
? Prefer start-ups or early stage companies helping the
organisation with seed capital.
? Invest in all industry sectors and show no sectoral preference
? Value adding partners of companies
? Geographically well dispersed
? They provide leveraging effect
? Cost effective; don?t charge high fees.
Disadvantages of Angel
investments
?Not so helpful when the company needs large
capital
?They want a say in the company which can be
sometimes detrimental
?When the going gets tough they can turnout to be
troublesome
?Finding quality angels is difficult.
Venture Capital
? Risk finance for entrepreneurial growth oriented companies and
investments for medium and long term returns. it is a partnership with
the entrepreneur in which the investor can add value to the company
because of his knowledge and experience
? Valuable and powerful source of equity capital. They make funds
available for start-ups and small businesses that have the potential to
grow exceptionally.
? In most cases a degree of managerial and technical expertise is also
provided.
? It is generally provided to early-stage, high potential and growth
companies with a view to generate an appreciable returns.
Nature of venture capital
? Equity participation: it is actual or potential equity
participation through direct purchase of shares or convertible
debentures. The objective is to sell for capital gains once the
organisation becomes profitable.
? Long-term investment: it is long term, illiquid and not
encashable on demand. It requires attitude to wait for 5-10
years for appreciable profits
? Participation in management: continued participation in the
management of the business. This helps to protect investment.
The VC gives his inputs on technology, marketing, planning
and management skills to the venture
? High degree of risk: Venture capital represents financial
investment in a high risk project with an objective of earning a
high rate of return.
? Achieve social objective: venture capital helps in acHieving
social objective of equality and development.
? Investment is illiquid: investor realizes his money only when his
shares are sold at a good gain. If venture loses money
investor gets nothing. Liquidity is very poor.
Need for venture capital
? Lack of capital for investment
? To enable start-up phase
? Acts as motivation to increase profits
? Experience of venture capitalist
? Involvement of venture capitalist
? Innovation
? Job creation
? Patient capital, not flighty
? Creating new industry clusters (media, retail, call centres, back office
processing, transportation, catering etc
Forms/stages of venture capital
?Early stage financing (seed capital stage, start-
up stage, second round financing)
?Later sage financing (Expansion financing,
replacement financing, turnaround, bridge
finance, buy-outs, buy-ins)
Advantages & Disadvantages of
VC
Advantages
? Business consultations
? Management consultations
? Human resources
? Additional resources
Disadvantages
? Management position
? Equity position
? Decision-making
? Business plans at risk
? Funding plan in doses
Venture capital process
Process of entry for a VC (entry strategy)
- Deal origination: stream of deals is essential for VC business.
Referral system works. VC industry motivates individuals to come
up with proposals
- Screening: screening to shortlist on basis of familiar technology,
product, market, size, place, stage of finance etc
- Evaluation/due diligence: after initial screening due diligence is
done. VCs usually rely on subjective and comprehensive
evaluation as the projects are new and entrepreneurs
inexperienced. VCs evaluate the quality of entrepreneur before
evaluating technology, product, market etc. VCs ask for
business plan to evaluate risk and return.
Venture capital process
- Investment valuation: done to ascertain value
of the deal. It is done on the basis of projected
revenue and profitability, expected market
capitalization etc
- Deal structuring: terms of the deal, amount form
and price of investment. All other terms like
governance, shares, buy-back, sale, valuation
support etc will be worked out.
Venture Capital process:
Process of exit for a VC (exit strategy)
Method by which a VC intends to cash-out or get out of the
investment is called the exit strategy.
It is not easy to cashout as the venture is not listed and is in private
domain.
Some of the exit routes are:
1. Initial public offer:
2. Acquisition by another company
3. Purchase by investee company
4. Purcase of VC share by 3P
Locating VC
? VCs tend to specialize on geography, industry, products and
services. Look for VCs on that basis
? Carefully research for such VCs. Look up in the VC association
directories. Lists available with names, addresses, types of
businesses, restrictions
? Due diligence to check reputation and ethics. Contacts other
investees to check. Check their credit history and financial
strength. Check their goals culture and professionalism
? Don?t get discouraged if one VC rejects the proposal. It may
be more to do with their style and approach rather than
valuation of one?s venture. Look for the best-fit
Approaching venture capitalist
? Explain why the business idea works through a face-to-face meeting.
Everyone has ideas but convincing the VC about workability is important
? Know the product inside-out. One should be able to explain the product
in an hour long speech as well as in an elevator speech
? Differentiate the product from what is available in the market and catch
the interest of the VC
? Determine how the product is able to create a new trend. Determine
how the new product is going to make a difference in everyday lives of
consumer
? Make a proper and professional contact with the VC. Use contacts,
online network will help. Avoid walking in, sending unsolicited mails/calls
may not help much
Approaching venture capitalist
? Have a airtight, professional business plan with rigor detailing all
strategies including financials
? Find the right VC firm. They specialize in terms of industry, size
etc. look for a VC that fits one?s venture
? Know the range of investment the VCs are capable of making.
? VC funding is all negotiation
1. never let them think you have no option
2. VCs sometimes reject and wait for weeks just as a strategy
3. Ask the broker for concessions after into the project for months.
Social
entrepreneurship
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
Types of Angel investors
? Corporate angels: senior managers from corporate firms who are laid-off
with generous severance pay or who have taken early retirement they
may also get a senior management position.
? Entrepreneurial angel: they own and opearte highly successful businesses.
They usually participate in 4-5 companies. They take a seat in board
usually and do not show interest to manage these businesses.
? Enthusiastic angels: For them investment is a hobby. They work short hours
and are wealthy. They are aged and would like to be involved in deals.
They make small investments. They play no role in management and rarely
in board
? Micro management Angels: They are very serious investors.
They ve attained wealth by their own efforts. With their
experience they tend to impose tactics which worked for
them they usually do not assume management roles but like
to be on the board of directors.
? Professional Angels: professionals like doctors, lawyers etc.
they invest in companies that offer products/services where
they have some experience. They invest in several
companies at one time. They rarely seek
board/management roles
Advantages of Angel investments
? They seek smaller deals
? Prefer start-ups or early stage companies helping the
organisation with seed capital.
? Invest in all industry sectors and show no sectoral preference
? Value adding partners of companies
? Geographically well dispersed
? They provide leveraging effect
? Cost effective; don?t charge high fees.
Disadvantages of Angel
investments
?Not so helpful when the company needs large
capital
?They want a say in the company which can be
sometimes detrimental
?When the going gets tough they can turnout to be
troublesome
?Finding quality angels is difficult.
Venture Capital
? Risk finance for entrepreneurial growth oriented companies and
investments for medium and long term returns. it is a partnership with
the entrepreneur in which the investor can add value to the company
because of his knowledge and experience
? Valuable and powerful source of equity capital. They make funds
available for start-ups and small businesses that have the potential to
grow exceptionally.
? In most cases a degree of managerial and technical expertise is also
provided.
? It is generally provided to early-stage, high potential and growth
companies with a view to generate an appreciable returns.
Nature of venture capital
? Equity participation: it is actual or potential equity
participation through direct purchase of shares or convertible
debentures. The objective is to sell for capital gains once the
organisation becomes profitable.
? Long-term investment: it is long term, illiquid and not
encashable on demand. It requires attitude to wait for 5-10
years for appreciable profits
? Participation in management: continued participation in the
management of the business. This helps to protect investment.
The VC gives his inputs on technology, marketing, planning
and management skills to the venture
? High degree of risk: Venture capital represents financial
investment in a high risk project with an objective of earning a
high rate of return.
? Achieve social objective: venture capital helps in acHieving
social objective of equality and development.
? Investment is illiquid: investor realizes his money only when his
shares are sold at a good gain. If venture loses money
investor gets nothing. Liquidity is very poor.
Need for venture capital
? Lack of capital for investment
? To enable start-up phase
? Acts as motivation to increase profits
? Experience of venture capitalist
? Involvement of venture capitalist
? Innovation
? Job creation
? Patient capital, not flighty
? Creating new industry clusters (media, retail, call centres, back office
processing, transportation, catering etc
Forms/stages of venture capital
?Early stage financing (seed capital stage, start-
up stage, second round financing)
?Later sage financing (Expansion financing,
replacement financing, turnaround, bridge
finance, buy-outs, buy-ins)
Advantages & Disadvantages of
VC
Advantages
? Business consultations
? Management consultations
? Human resources
? Additional resources
Disadvantages
? Management position
? Equity position
? Decision-making
? Business plans at risk
? Funding plan in doses
Venture capital process
Process of entry for a VC (entry strategy)
- Deal origination: stream of deals is essential for VC business.
Referral system works. VC industry motivates individuals to come
up with proposals
- Screening: screening to shortlist on basis of familiar technology,
product, market, size, place, stage of finance etc
- Evaluation/due diligence: after initial screening due diligence is
done. VCs usually rely on subjective and comprehensive
evaluation as the projects are new and entrepreneurs
inexperienced. VCs evaluate the quality of entrepreneur before
evaluating technology, product, market etc. VCs ask for
business plan to evaluate risk and return.
Venture capital process
- Investment valuation: done to ascertain value
of the deal. It is done on the basis of projected
revenue and profitability, expected market
capitalization etc
- Deal structuring: terms of the deal, amount form
and price of investment. All other terms like
governance, shares, buy-back, sale, valuation
support etc will be worked out.
Venture Capital process:
Process of exit for a VC (exit strategy)
Method by which a VC intends to cash-out or get out of the
investment is called the exit strategy.
It is not easy to cashout as the venture is not listed and is in private
domain.
Some of the exit routes are:
1. Initial public offer:
2. Acquisition by another company
3. Purchase by investee company
4. Purcase of VC share by 3P
Locating VC
? VCs tend to specialize on geography, industry, products and
services. Look for VCs on that basis
? Carefully research for such VCs. Look up in the VC association
directories. Lists available with names, addresses, types of
businesses, restrictions
? Due diligence to check reputation and ethics. Contacts other
investees to check. Check their credit history and financial
strength. Check their goals culture and professionalism
? Don?t get discouraged if one VC rejects the proposal. It may
be more to do with their style and approach rather than
valuation of one?s venture. Look for the best-fit
Approaching venture capitalist
? Explain why the business idea works through a face-to-face meeting.
Everyone has ideas but convincing the VC about workability is important
? Know the product inside-out. One should be able to explain the product
in an hour long speech as well as in an elevator speech
? Differentiate the product from what is available in the market and catch
the interest of the VC
? Determine how the product is able to create a new trend. Determine
how the new product is going to make a difference in everyday lives of
consumer
? Make a proper and professional contact with the VC. Use contacts,
online network will help. Avoid walking in, sending unsolicited mails/calls
may not help much
Approaching venture capitalist
? Have a airtight, professional business plan with rigor detailing all
strategies including financials
? Find the right VC firm. They specialize in terms of industry, size
etc. look for a VC that fits one?s venture
? Know the range of investment the VCs are capable of making.
? VC funding is all negotiation
1. never let them think you have no option
2. VCs sometimes reject and wait for weeks just as a strategy
3. Ask the broker for concessions after into the project for months.
Social
entrepreneurship
Social enterprise
? Social enterprise is an organization that applies commercial
strategies to maximize improvements in human and
environment; well-being, rather than maximizing profits for
external shareholders.
? This can be a for-profit or non-profit organization
? May be in the form of cooperative, business organization, charty
organization etc. different from commercial organisations having
social objectives.
? According to social enterprise alliance (US) ?a social enterprise is
an organization or venture that achieves its primary social or
environmental mission using business methods
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
Types of Angel investors
? Corporate angels: senior managers from corporate firms who are laid-off
with generous severance pay or who have taken early retirement they
may also get a senior management position.
? Entrepreneurial angel: they own and opearte highly successful businesses.
They usually participate in 4-5 companies. They take a seat in board
usually and do not show interest to manage these businesses.
? Enthusiastic angels: For them investment is a hobby. They work short hours
and are wealthy. They are aged and would like to be involved in deals.
They make small investments. They play no role in management and rarely
in board
? Micro management Angels: They are very serious investors.
They ve attained wealth by their own efforts. With their
experience they tend to impose tactics which worked for
them they usually do not assume management roles but like
to be on the board of directors.
? Professional Angels: professionals like doctors, lawyers etc.
they invest in companies that offer products/services where
they have some experience. They invest in several
companies at one time. They rarely seek
board/management roles
Advantages of Angel investments
? They seek smaller deals
? Prefer start-ups or early stage companies helping the
organisation with seed capital.
? Invest in all industry sectors and show no sectoral preference
? Value adding partners of companies
? Geographically well dispersed
? They provide leveraging effect
? Cost effective; don?t charge high fees.
Disadvantages of Angel
investments
?Not so helpful when the company needs large
capital
?They want a say in the company which can be
sometimes detrimental
?When the going gets tough they can turnout to be
troublesome
?Finding quality angels is difficult.
Venture Capital
? Risk finance for entrepreneurial growth oriented companies and
investments for medium and long term returns. it is a partnership with
the entrepreneur in which the investor can add value to the company
because of his knowledge and experience
? Valuable and powerful source of equity capital. They make funds
available for start-ups and small businesses that have the potential to
grow exceptionally.
? In most cases a degree of managerial and technical expertise is also
provided.
? It is generally provided to early-stage, high potential and growth
companies with a view to generate an appreciable returns.
Nature of venture capital
? Equity participation: it is actual or potential equity
participation through direct purchase of shares or convertible
debentures. The objective is to sell for capital gains once the
organisation becomes profitable.
? Long-term investment: it is long term, illiquid and not
encashable on demand. It requires attitude to wait for 5-10
years for appreciable profits
? Participation in management: continued participation in the
management of the business. This helps to protect investment.
The VC gives his inputs on technology, marketing, planning
and management skills to the venture
? High degree of risk: Venture capital represents financial
investment in a high risk project with an objective of earning a
high rate of return.
? Achieve social objective: venture capital helps in acHieving
social objective of equality and development.
? Investment is illiquid: investor realizes his money only when his
shares are sold at a good gain. If venture loses money
investor gets nothing. Liquidity is very poor.
Need for venture capital
? Lack of capital for investment
? To enable start-up phase
? Acts as motivation to increase profits
? Experience of venture capitalist
? Involvement of venture capitalist
? Innovation
? Job creation
? Patient capital, not flighty
? Creating new industry clusters (media, retail, call centres, back office
processing, transportation, catering etc
Forms/stages of venture capital
?Early stage financing (seed capital stage, start-
up stage, second round financing)
?Later sage financing (Expansion financing,
replacement financing, turnaround, bridge
finance, buy-outs, buy-ins)
Advantages & Disadvantages of
VC
Advantages
? Business consultations
? Management consultations
? Human resources
? Additional resources
Disadvantages
? Management position
? Equity position
? Decision-making
? Business plans at risk
? Funding plan in doses
Venture capital process
Process of entry for a VC (entry strategy)
- Deal origination: stream of deals is essential for VC business.
Referral system works. VC industry motivates individuals to come
up with proposals
- Screening: screening to shortlist on basis of familiar technology,
product, market, size, place, stage of finance etc
- Evaluation/due diligence: after initial screening due diligence is
done. VCs usually rely on subjective and comprehensive
evaluation as the projects are new and entrepreneurs
inexperienced. VCs evaluate the quality of entrepreneur before
evaluating technology, product, market etc. VCs ask for
business plan to evaluate risk and return.
Venture capital process
- Investment valuation: done to ascertain value
of the deal. It is done on the basis of projected
revenue and profitability, expected market
capitalization etc
- Deal structuring: terms of the deal, amount form
and price of investment. All other terms like
governance, shares, buy-back, sale, valuation
support etc will be worked out.
Venture Capital process:
Process of exit for a VC (exit strategy)
Method by which a VC intends to cash-out or get out of the
investment is called the exit strategy.
It is not easy to cashout as the venture is not listed and is in private
domain.
Some of the exit routes are:
1. Initial public offer:
2. Acquisition by another company
3. Purchase by investee company
4. Purcase of VC share by 3P
Locating VC
? VCs tend to specialize on geography, industry, products and
services. Look for VCs on that basis
? Carefully research for such VCs. Look up in the VC association
directories. Lists available with names, addresses, types of
businesses, restrictions
? Due diligence to check reputation and ethics. Contacts other
investees to check. Check their credit history and financial
strength. Check their goals culture and professionalism
? Don?t get discouraged if one VC rejects the proposal. It may
be more to do with their style and approach rather than
valuation of one?s venture. Look for the best-fit
Approaching venture capitalist
? Explain why the business idea works through a face-to-face meeting.
Everyone has ideas but convincing the VC about workability is important
? Know the product inside-out. One should be able to explain the product
in an hour long speech as well as in an elevator speech
? Differentiate the product from what is available in the market and catch
the interest of the VC
? Determine how the product is able to create a new trend. Determine
how the new product is going to make a difference in everyday lives of
consumer
? Make a proper and professional contact with the VC. Use contacts,
online network will help. Avoid walking in, sending unsolicited mails/calls
may not help much
Approaching venture capitalist
? Have a airtight, professional business plan with rigor detailing all
strategies including financials
? Find the right VC firm. They specialize in terms of industry, size
etc. look for a VC that fits one?s venture
? Know the range of investment the VCs are capable of making.
? VC funding is all negotiation
1. never let them think you have no option
2. VCs sometimes reject and wait for weeks just as a strategy
3. Ask the broker for concessions after into the project for months.
Social
entrepreneurship
Social enterprise
? Social enterprise is an organization that applies commercial
strategies to maximize improvements in human and
environment; well-being, rather than maximizing profits for
external shareholders.
? This can be a for-profit or non-profit organization
? May be in the form of cooperative, business organization, charty
organization etc. different from commercial organisations having
social objectives.
? According to social enterprise alliance (US) ?a social enterprise is
an organization or venture that achieves its primary social or
environmental mission using business methods
Characteristics of social enterprise
? Enterprise orientation: they are directly involved in producing
goods/services to a market and they seek to be a viable
trading organization with operating surplus.
? Social aims: explicit social aims such as job creation, training, or
local services,. Ethical values including commitment to local
capacity building. They are accountable to their members and
community for social, environmental and economic impact
? Social ownership: they are autonomous organisations with
governance and ownership structures based on participation
by stakeholder groups or trustees. Profits are distribute as profit-
sharing to stakeholders or used for the benefit of society.
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
Types of Angel investors
? Corporate angels: senior managers from corporate firms who are laid-off
with generous severance pay or who have taken early retirement they
may also get a senior management position.
? Entrepreneurial angel: they own and opearte highly successful businesses.
They usually participate in 4-5 companies. They take a seat in board
usually and do not show interest to manage these businesses.
? Enthusiastic angels: For them investment is a hobby. They work short hours
and are wealthy. They are aged and would like to be involved in deals.
They make small investments. They play no role in management and rarely
in board
? Micro management Angels: They are very serious investors.
They ve attained wealth by their own efforts. With their
experience they tend to impose tactics which worked for
them they usually do not assume management roles but like
to be on the board of directors.
? Professional Angels: professionals like doctors, lawyers etc.
they invest in companies that offer products/services where
they have some experience. They invest in several
companies at one time. They rarely seek
board/management roles
Advantages of Angel investments
? They seek smaller deals
? Prefer start-ups or early stage companies helping the
organisation with seed capital.
? Invest in all industry sectors and show no sectoral preference
? Value adding partners of companies
? Geographically well dispersed
? They provide leveraging effect
? Cost effective; don?t charge high fees.
Disadvantages of Angel
investments
?Not so helpful when the company needs large
capital
?They want a say in the company which can be
sometimes detrimental
?When the going gets tough they can turnout to be
troublesome
?Finding quality angels is difficult.
Venture Capital
? Risk finance for entrepreneurial growth oriented companies and
investments for medium and long term returns. it is a partnership with
the entrepreneur in which the investor can add value to the company
because of his knowledge and experience
? Valuable and powerful source of equity capital. They make funds
available for start-ups and small businesses that have the potential to
grow exceptionally.
? In most cases a degree of managerial and technical expertise is also
provided.
? It is generally provided to early-stage, high potential and growth
companies with a view to generate an appreciable returns.
Nature of venture capital
? Equity participation: it is actual or potential equity
participation through direct purchase of shares or convertible
debentures. The objective is to sell for capital gains once the
organisation becomes profitable.
? Long-term investment: it is long term, illiquid and not
encashable on demand. It requires attitude to wait for 5-10
years for appreciable profits
? Participation in management: continued participation in the
management of the business. This helps to protect investment.
The VC gives his inputs on technology, marketing, planning
and management skills to the venture
? High degree of risk: Venture capital represents financial
investment in a high risk project with an objective of earning a
high rate of return.
? Achieve social objective: venture capital helps in acHieving
social objective of equality and development.
? Investment is illiquid: investor realizes his money only when his
shares are sold at a good gain. If venture loses money
investor gets nothing. Liquidity is very poor.
Need for venture capital
? Lack of capital for investment
? To enable start-up phase
? Acts as motivation to increase profits
? Experience of venture capitalist
? Involvement of venture capitalist
? Innovation
? Job creation
? Patient capital, not flighty
? Creating new industry clusters (media, retail, call centres, back office
processing, transportation, catering etc
Forms/stages of venture capital
?Early stage financing (seed capital stage, start-
up stage, second round financing)
?Later sage financing (Expansion financing,
replacement financing, turnaround, bridge
finance, buy-outs, buy-ins)
Advantages & Disadvantages of
VC
Advantages
? Business consultations
? Management consultations
? Human resources
? Additional resources
Disadvantages
? Management position
? Equity position
? Decision-making
? Business plans at risk
? Funding plan in doses
Venture capital process
Process of entry for a VC (entry strategy)
- Deal origination: stream of deals is essential for VC business.
Referral system works. VC industry motivates individuals to come
up with proposals
- Screening: screening to shortlist on basis of familiar technology,
product, market, size, place, stage of finance etc
- Evaluation/due diligence: after initial screening due diligence is
done. VCs usually rely on subjective and comprehensive
evaluation as the projects are new and entrepreneurs
inexperienced. VCs evaluate the quality of entrepreneur before
evaluating technology, product, market etc. VCs ask for
business plan to evaluate risk and return.
Venture capital process
- Investment valuation: done to ascertain value
of the deal. It is done on the basis of projected
revenue and profitability, expected market
capitalization etc
- Deal structuring: terms of the deal, amount form
and price of investment. All other terms like
governance, shares, buy-back, sale, valuation
support etc will be worked out.
Venture Capital process:
Process of exit for a VC (exit strategy)
Method by which a VC intends to cash-out or get out of the
investment is called the exit strategy.
It is not easy to cashout as the venture is not listed and is in private
domain.
Some of the exit routes are:
1. Initial public offer:
2. Acquisition by another company
3. Purchase by investee company
4. Purcase of VC share by 3P
Locating VC
? VCs tend to specialize on geography, industry, products and
services. Look for VCs on that basis
? Carefully research for such VCs. Look up in the VC association
directories. Lists available with names, addresses, types of
businesses, restrictions
? Due diligence to check reputation and ethics. Contacts other
investees to check. Check their credit history and financial
strength. Check their goals culture and professionalism
? Don?t get discouraged if one VC rejects the proposal. It may
be more to do with their style and approach rather than
valuation of one?s venture. Look for the best-fit
Approaching venture capitalist
? Explain why the business idea works through a face-to-face meeting.
Everyone has ideas but convincing the VC about workability is important
? Know the product inside-out. One should be able to explain the product
in an hour long speech as well as in an elevator speech
? Differentiate the product from what is available in the market and catch
the interest of the VC
? Determine how the product is able to create a new trend. Determine
how the new product is going to make a difference in everyday lives of
consumer
? Make a proper and professional contact with the VC. Use contacts,
online network will help. Avoid walking in, sending unsolicited mails/calls
may not help much
Approaching venture capitalist
? Have a airtight, professional business plan with rigor detailing all
strategies including financials
? Find the right VC firm. They specialize in terms of industry, size
etc. look for a VC that fits one?s venture
? Know the range of investment the VCs are capable of making.
? VC funding is all negotiation
1. never let them think you have no option
2. VCs sometimes reject and wait for weeks just as a strategy
3. Ask the broker for concessions after into the project for months.
Social
entrepreneurship
Social enterprise
? Social enterprise is an organization that applies commercial
strategies to maximize improvements in human and
environment; well-being, rather than maximizing profits for
external shareholders.
? This can be a for-profit or non-profit organization
? May be in the form of cooperative, business organization, charty
organization etc. different from commercial organisations having
social objectives.
? According to social enterprise alliance (US) ?a social enterprise is
an organization or venture that achieves its primary social or
environmental mission using business methods
Characteristics of social enterprise
? Enterprise orientation: they are directly involved in producing
goods/services to a market and they seek to be a viable
trading organization with operating surplus.
? Social aims: explicit social aims such as job creation, training, or
local services,. Ethical values including commitment to local
capacity building. They are accountable to their members and
community for social, environmental and economic impact
? Social ownership: they are autonomous organisations with
governance and ownership structures based on participation
by stakeholder groups or trustees. Profits are distribute as profit-
sharing to stakeholders or used for the benefit of society.
Need for social enterprise
?Meets the requirements of local market-
farmers, smes etc
?Advancing social mission- social causes
?Financial sustainability ? government
sources dries up
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
Types of Angel investors
? Corporate angels: senior managers from corporate firms who are laid-off
with generous severance pay or who have taken early retirement they
may also get a senior management position.
? Entrepreneurial angel: they own and opearte highly successful businesses.
They usually participate in 4-5 companies. They take a seat in board
usually and do not show interest to manage these businesses.
? Enthusiastic angels: For them investment is a hobby. They work short hours
and are wealthy. They are aged and would like to be involved in deals.
They make small investments. They play no role in management and rarely
in board
? Micro management Angels: They are very serious investors.
They ve attained wealth by their own efforts. With their
experience they tend to impose tactics which worked for
them they usually do not assume management roles but like
to be on the board of directors.
? Professional Angels: professionals like doctors, lawyers etc.
they invest in companies that offer products/services where
they have some experience. They invest in several
companies at one time. They rarely seek
board/management roles
Advantages of Angel investments
? They seek smaller deals
? Prefer start-ups or early stage companies helping the
organisation with seed capital.
? Invest in all industry sectors and show no sectoral preference
? Value adding partners of companies
? Geographically well dispersed
? They provide leveraging effect
? Cost effective; don?t charge high fees.
Disadvantages of Angel
investments
?Not so helpful when the company needs large
capital
?They want a say in the company which can be
sometimes detrimental
?When the going gets tough they can turnout to be
troublesome
?Finding quality angels is difficult.
Venture Capital
? Risk finance for entrepreneurial growth oriented companies and
investments for medium and long term returns. it is a partnership with
the entrepreneur in which the investor can add value to the company
because of his knowledge and experience
? Valuable and powerful source of equity capital. They make funds
available for start-ups and small businesses that have the potential to
grow exceptionally.
? In most cases a degree of managerial and technical expertise is also
provided.
? It is generally provided to early-stage, high potential and growth
companies with a view to generate an appreciable returns.
Nature of venture capital
? Equity participation: it is actual or potential equity
participation through direct purchase of shares or convertible
debentures. The objective is to sell for capital gains once the
organisation becomes profitable.
? Long-term investment: it is long term, illiquid and not
encashable on demand. It requires attitude to wait for 5-10
years for appreciable profits
? Participation in management: continued participation in the
management of the business. This helps to protect investment.
The VC gives his inputs on technology, marketing, planning
and management skills to the venture
? High degree of risk: Venture capital represents financial
investment in a high risk project with an objective of earning a
high rate of return.
? Achieve social objective: venture capital helps in acHieving
social objective of equality and development.
? Investment is illiquid: investor realizes his money only when his
shares are sold at a good gain. If venture loses money
investor gets nothing. Liquidity is very poor.
Need for venture capital
? Lack of capital for investment
? To enable start-up phase
? Acts as motivation to increase profits
? Experience of venture capitalist
? Involvement of venture capitalist
? Innovation
? Job creation
? Patient capital, not flighty
? Creating new industry clusters (media, retail, call centres, back office
processing, transportation, catering etc
Forms/stages of venture capital
?Early stage financing (seed capital stage, start-
up stage, second round financing)
?Later sage financing (Expansion financing,
replacement financing, turnaround, bridge
finance, buy-outs, buy-ins)
Advantages & Disadvantages of
VC
Advantages
? Business consultations
? Management consultations
? Human resources
? Additional resources
Disadvantages
? Management position
? Equity position
? Decision-making
? Business plans at risk
? Funding plan in doses
Venture capital process
Process of entry for a VC (entry strategy)
- Deal origination: stream of deals is essential for VC business.
Referral system works. VC industry motivates individuals to come
up with proposals
- Screening: screening to shortlist on basis of familiar technology,
product, market, size, place, stage of finance etc
- Evaluation/due diligence: after initial screening due diligence is
done. VCs usually rely on subjective and comprehensive
evaluation as the projects are new and entrepreneurs
inexperienced. VCs evaluate the quality of entrepreneur before
evaluating technology, product, market etc. VCs ask for
business plan to evaluate risk and return.
Venture capital process
- Investment valuation: done to ascertain value
of the deal. It is done on the basis of projected
revenue and profitability, expected market
capitalization etc
- Deal structuring: terms of the deal, amount form
and price of investment. All other terms like
governance, shares, buy-back, sale, valuation
support etc will be worked out.
Venture Capital process:
Process of exit for a VC (exit strategy)
Method by which a VC intends to cash-out or get out of the
investment is called the exit strategy.
It is not easy to cashout as the venture is not listed and is in private
domain.
Some of the exit routes are:
1. Initial public offer:
2. Acquisition by another company
3. Purchase by investee company
4. Purcase of VC share by 3P
Locating VC
? VCs tend to specialize on geography, industry, products and
services. Look for VCs on that basis
? Carefully research for such VCs. Look up in the VC association
directories. Lists available with names, addresses, types of
businesses, restrictions
? Due diligence to check reputation and ethics. Contacts other
investees to check. Check their credit history and financial
strength. Check their goals culture and professionalism
? Don?t get discouraged if one VC rejects the proposal. It may
be more to do with their style and approach rather than
valuation of one?s venture. Look for the best-fit
Approaching venture capitalist
? Explain why the business idea works through a face-to-face meeting.
Everyone has ideas but convincing the VC about workability is important
? Know the product inside-out. One should be able to explain the product
in an hour long speech as well as in an elevator speech
? Differentiate the product from what is available in the market and catch
the interest of the VC
? Determine how the product is able to create a new trend. Determine
how the new product is going to make a difference in everyday lives of
consumer
? Make a proper and professional contact with the VC. Use contacts,
online network will help. Avoid walking in, sending unsolicited mails/calls
may not help much
Approaching venture capitalist
? Have a airtight, professional business plan with rigor detailing all
strategies including financials
? Find the right VC firm. They specialize in terms of industry, size
etc. look for a VC that fits one?s venture
? Know the range of investment the VCs are capable of making.
? VC funding is all negotiation
1. never let them think you have no option
2. VCs sometimes reject and wait for weeks just as a strategy
3. Ask the broker for concessions after into the project for months.
Social
entrepreneurship
Social enterprise
? Social enterprise is an organization that applies commercial
strategies to maximize improvements in human and
environment; well-being, rather than maximizing profits for
external shareholders.
? This can be a for-profit or non-profit organization
? May be in the form of cooperative, business organization, charty
organization etc. different from commercial organisations having
social objectives.
? According to social enterprise alliance (US) ?a social enterprise is
an organization or venture that achieves its primary social or
environmental mission using business methods
Characteristics of social enterprise
? Enterprise orientation: they are directly involved in producing
goods/services to a market and they seek to be a viable
trading organization with operating surplus.
? Social aims: explicit social aims such as job creation, training, or
local services,. Ethical values including commitment to local
capacity building. They are accountable to their members and
community for social, environmental and economic impact
? Social ownership: they are autonomous organisations with
governance and ownership structures based on participation
by stakeholder groups or trustees. Profits are distribute as profit-
sharing to stakeholders or used for the benefit of society.
Need for social enterprise
?Meets the requirements of local market-
farmers, smes etc
?Advancing social mission- social causes
?Financial sustainability ? government
sources dries up
Types of social enterprise
? Social firms: business firms set up to create employment for the most severely
disadvantaged
? Cooperatives: people join together to meet to meet common economic and social
needs through jointly owned enterprises.
? Development trusts: organization created to provide integrated employment to
people with disabilities and disadvantages.
? Intermediate labour market companies: provide training and work experience for the
long term unemployed and other disadvantaged groups. Idea is to help them re-
enter labour market
? Community business: enterprises having strong global presence with local focus. Focus
on local development and employment for local people.
? Credit unions: finance cooperatives that help people to save and borrow money. Also
have community finance initiatives.
? Charities trading arms: charities in annovative ways like restaurants, shops and fair
trade companies.
FirstRanker.com - FirstRanker's Choice
Venture capital,
social and rural
entrepreneurship
MODULE 6
Sources of capital
?There are various sources like:
?Owners? money
?Friends and relatives
?Angel investors
?Seed capital
?Venture capital
?Private placements
?IPO
?Debt for WC and long term capital
Informal risk capital market
?Many wealthy people looking for invest
opportunities are called angel investors or informal
risk capitalists.
?Business angels are high networth individuals who
provide early stage capital to start-up business in
the form of debt, equity or both.
?They provide capital to start-ups which are
?- too small to get attention of venture capital firms
?- too risky for bank loans
?- too limited in their revenue generation
Types of Angel investors
? Corporate angels: senior managers from corporate firms who are laid-off
with generous severance pay or who have taken early retirement they
may also get a senior management position.
? Entrepreneurial angel: they own and opearte highly successful businesses.
They usually participate in 4-5 companies. They take a seat in board
usually and do not show interest to manage these businesses.
? Enthusiastic angels: For them investment is a hobby. They work short hours
and are wealthy. They are aged and would like to be involved in deals.
They make small investments. They play no role in management and rarely
in board
? Micro management Angels: They are very serious investors.
They ve attained wealth by their own efforts. With their
experience they tend to impose tactics which worked for
them they usually do not assume management roles but like
to be on the board of directors.
? Professional Angels: professionals like doctors, lawyers etc.
they invest in companies that offer products/services where
they have some experience. They invest in several
companies at one time. They rarely seek
board/management roles
Advantages of Angel investments
? They seek smaller deals
? Prefer start-ups or early stage companies helping the
organisation with seed capital.
? Invest in all industry sectors and show no sectoral preference
? Value adding partners of companies
? Geographically well dispersed
? They provide leveraging effect
? Cost effective; don?t charge high fees.
Disadvantages of Angel
investments
?Not so helpful when the company needs large
capital
?They want a say in the company which can be
sometimes detrimental
?When the going gets tough they can turnout to be
troublesome
?Finding quality angels is difficult.
Venture Capital
? Risk finance for entrepreneurial growth oriented companies and
investments for medium and long term returns. it is a partnership with
the entrepreneur in which the investor can add value to the company
because of his knowledge and experience
? Valuable and powerful source of equity capital. They make funds
available for start-ups and small businesses that have the potential to
grow exceptionally.
? In most cases a degree of managerial and technical expertise is also
provided.
? It is generally provided to early-stage, high potential and growth
companies with a view to generate an appreciable returns.
Nature of venture capital
? Equity participation: it is actual or potential equity
participation through direct purchase of shares or convertible
debentures. The objective is to sell for capital gains once the
organisation becomes profitable.
? Long-term investment: it is long term, illiquid and not
encashable on demand. It requires attitude to wait for 5-10
years for appreciable profits
? Participation in management: continued participation in the
management of the business. This helps to protect investment.
The VC gives his inputs on technology, marketing, planning
and management skills to the venture
? High degree of risk: Venture capital represents financial
investment in a high risk project with an objective of earning a
high rate of return.
? Achieve social objective: venture capital helps in acHieving
social objective of equality and development.
? Investment is illiquid: investor realizes his money only when his
shares are sold at a good gain. If venture loses money
investor gets nothing. Liquidity is very poor.
Need for venture capital
? Lack of capital for investment
? To enable start-up phase
? Acts as motivation to increase profits
? Experience of venture capitalist
? Involvement of venture capitalist
? Innovation
? Job creation
? Patient capital, not flighty
? Creating new industry clusters (media, retail, call centres, back office
processing, transportation, catering etc
Forms/stages of venture capital
?Early stage financing (seed capital stage, start-
up stage, second round financing)
?Later sage financing (Expansion financing,
replacement financing, turnaround, bridge
finance, buy-outs, buy-ins)
Advantages & Disadvantages of
VC
Advantages
? Business consultations
? Management consultations
? Human resources
? Additional resources
Disadvantages
? Management position
? Equity position
? Decision-making
? Business plans at risk
? Funding plan in doses
Venture capital process
Process of entry for a VC (entry strategy)
- Deal origination: stream of deals is essential for VC business.
Referral system works. VC industry motivates individuals to come
up with proposals
- Screening: screening to shortlist on basis of familiar technology,
product, market, size, place, stage of finance etc
- Evaluation/due diligence: after initial screening due diligence is
done. VCs usually rely on subjective and comprehensive
evaluation as the projects are new and entrepreneurs
inexperienced. VCs evaluate the quality of entrepreneur before
evaluating technology, product, market etc. VCs ask for
business plan to evaluate risk and return.
Venture capital process
- Investment valuation: done to ascertain value
of the deal. It is done on the basis of projected
revenue and profitability, expected market
capitalization etc
- Deal structuring: terms of the deal, amount form
and price of investment. All other terms like
governance, shares, buy-back, sale, valuation
support etc will be worked out.
Venture Capital process:
Process of exit for a VC (exit strategy)
Method by which a VC intends to cash-out or get out of the
investment is called the exit strategy.
It is not easy to cashout as the venture is not listed and is in private
domain.
Some of the exit routes are:
1. Initial public offer:
2. Acquisition by another company
3. Purchase by investee company
4. Purcase of VC share by 3P
Locating VC
? VCs tend to specialize on geography, industry, products and
services. Look for VCs on that basis
? Carefully research for such VCs. Look up in the VC association
directories. Lists available with names, addresses, types of
businesses, restrictions
? Due diligence to check reputation and ethics. Contacts other
investees to check. Check their credit history and financial
strength. Check their goals culture and professionalism
? Don?t get discouraged if one VC rejects the proposal. It may
be more to do with their style and approach rather than
valuation of one?s venture. Look for the best-fit
Approaching venture capitalist
? Explain why the business idea works through a face-to-face meeting.
Everyone has ideas but convincing the VC about workability is important
? Know the product inside-out. One should be able to explain the product
in an hour long speech as well as in an elevator speech
? Differentiate the product from what is available in the market and catch
the interest of the VC
? Determine how the product is able to create a new trend. Determine
how the new product is going to make a difference in everyday lives of
consumer
? Make a proper and professional contact with the VC. Use contacts,
online network will help. Avoid walking in, sending unsolicited mails/calls
may not help much
Approaching venture capitalist
? Have a airtight, professional business plan with rigor detailing all
strategies including financials
? Find the right VC firm. They specialize in terms of industry, size
etc. look for a VC that fits one?s venture
? Know the range of investment the VCs are capable of making.
? VC funding is all negotiation
1. never let them think you have no option
2. VCs sometimes reject and wait for weeks just as a strategy
3. Ask the broker for concessions after into the project for months.
Social
entrepreneurship
Social enterprise
? Social enterprise is an organization that applies commercial
strategies to maximize improvements in human and
environment; well-being, rather than maximizing profits for
external shareholders.
? This can be a for-profit or non-profit organization
? May be in the form of cooperative, business organization, charty
organization etc. different from commercial organisations having
social objectives.
? According to social enterprise alliance (US) ?a social enterprise is
an organization or venture that achieves its primary social or
environmental mission using business methods
Characteristics of social enterprise
? Enterprise orientation: they are directly involved in producing
goods/services to a market and they seek to be a viable
trading organization with operating surplus.
? Social aims: explicit social aims such as job creation, training, or
local services,. Ethical values including commitment to local
capacity building. They are accountable to their members and
community for social, environmental and economic impact
? Social ownership: they are autonomous organisations with
governance and ownership structures based on participation
by stakeholder groups or trustees. Profits are distribute as profit-
sharing to stakeholders or used for the benefit of society.
Need for social enterprise
?Meets the requirements of local market-
farmers, smes etc
?Advancing social mission- social causes
?Financial sustainability ? government
sources dries up
Types of social enterprise
? Social firms: business firms set up to create employment for the most severely
disadvantaged
? Cooperatives: people join together to meet to meet common economic and social
needs through jointly owned enterprises.
? Development trusts: organization created to provide integrated employment to
people with disabilities and disadvantages.
? Intermediate labour market companies: provide training and work experience for the
long term unemployed and other disadvantaged groups. Idea is to help them re-
enter labour market
? Community business: enterprises having strong global presence with local focus. Focus
on local development and employment for local people.
? Credit unions: finance cooperatives that help people to save and borrow money. Also
have community finance initiatives.
? Charities trading arms: charities in annovative ways like restaurants, shops and fair
trade companies.
Presentations:
?Meaning definition an types of social
entrepreners
?Importance and limitations of social
entrepreneurship
?Meaning definitions and characteristics of
rural entrepreneurship
?Need and types of rural entrepreneurship
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This post was last modified on 18 February 2020