Venture Capital Financial Management

Venture Capital
Financial Management
•Akshath Kale – 69
•Anish Bajari – 72
•Ronak Surana – 101
•Sanika Sankhe – 107
•Sharda Saini – 110
•Yash Kadam – 127
VENTURE CAPITAL
Venture capital (VC) is a type of financing for startup

and young companies with high growth potential. VC
firms, the ones managing the money, are looking to
invest in businesses that have the chance to become
much bigger and more valuable in the future.
Private equity
Private equity (PE) refers to investments
in companies that are not publicly traded on
stock exchanges like the New York
Stock Exchange (NYSE) or the
Bombay Stock Exchange (BSE). PE firms,
which manage the investment funds,
typically target established businesses with
strong growth potential.
Methodology of Venture Capital
Funding
VCs actively seek investment opportunities through networking, events, and
Deal Sourcing referrals.
Evaluate opportunities based on team, market potential, scalability, etc.

Screening and Due
Conduct comprehensive due diligence on business model, finances, IP, and legal
Diligence matters.
Decide on investment based on alignment with investment thesis, risk, and return
Investment Decision expectations.
Term Sheet Present terms including funding amount, valuation, equity, and governance rights.
Negotiation
Legal
Draft and finalize legal agreements including investment and shareholder
Documentation and agreements.
Closing
Provide strategic guidance, industry
Value Addition and expertise, and networking opportunities.
Monitoring Monitor progress through board seats or

observer roles.
Participate in subsequent funding rounds to

Follow-on Financing support growth.
Realize returns through IPOs, M&A, or

Exit Strategy secondary sales based on market conditions
and company performance.
Manage portfolio to diversify risk and

maximize returns.
Portfolio Management Continuously assess performance and make
strategic decisions.
Methods of venture capital financing
Equity Financing Debentures

Ideal for start-ups needing substantial capital Start-ups issue debt papers to investors,
with high growth potential. promising repayment upon maturity.
Investors receive stake in the company in Interest rates vary:
exchange for funds. • Nil before business commencement.
Investors' contribution capped at 49% without • Low after commencement.
voting rights, allowing entrepreneurs autonomy. • High after reaching a certain operational level.
Entrepreneur pays lender royalties instead of fixed interest.
Conditional Loans Royalty rates (2% to 15%) vary based on factors like risk and
cash flow patterns.
Entrepreneurs pay interest to lenders.

Conventional Loans Initial interest rates low, increasing with venture profits.
Royalties paid based on profits/sales in addition to interest.
Hybrid financing combining features of conditional and

traditional loans.
Income Notes Entrepreneurs pay interest and repay principal within set
period.
Royalties paid based on sales volume or profit.
PRIVATE EQUITY vs VENTURE
CAPITAL
PROS OF PE PROS OF VC
Access to Capital Growth Capital

Expertise and Guidance Operational Expertise
Network Exit Strategy
Validation Improved Management
High-Risk, High-Reward Increased Liquidity
Potential
•Venture capital (VC) and private equity (PE) can be
a double-edged sword for companies. While they
offer significant advantages, there are also potential
drawbacks to consider:
•Loss of Control
•Dilution of Ownership
•Alignment of Interests
•Debt Burden
•Pressure for Growth
•1. Deal Origination
•2. Introductory Meeting
•3. Due Diligence/Internal Analysis
•4. Negotiation and Investment
Procedural •In addition to these general funding stages there are

Aspects different types of funding that VC firms give out -
•Seed Stage
•Series A
•Series B
•Series C
•Later Stage
Deal Structuring:
• Valuation
• Term sheets
• Conversion Rights
• Liquidation Preferences
TECHNICA
L ASPECTS Due Diligence:
• Market Analysis
• Financial Analysis
• Management Team Evaluation
• Technological Due Diligence
EXIT
STRATEGIES
VC firms target a return on investment through an
"exit" from their portfolio companies. Common
exits include:
• Acquisition: Another company purchases the VC-
backed startup.
• IPO: The startup raises capital by selling shares to
the public.
• Secondary Sale: The VC firm sells its stake in the
startup to another investor.

Venture Capital Financial Management

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Venture Capital

Venture capital (VC) is a type of financing for startup

Evaluate opportunities based on team, market potential, scalability, etc.

Monitoring Monitor progress through board seats or

Participate in subsequent funding rounds to

Realize returns through IPOs, M&A, or

Manage portfolio to diversify risk and

Equity Financing Debentures

Entrepreneurs pay interest to lenders.

Hybrid financing combining features of conditional and

Access to Capital Growth Capital

Procedural •In addition to these general funding stages there are

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