Venture Capital & Lease Finance

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Group Members
Meet Desai Rikshit Mehta Prakash Thakkar Keyur Gadhiya Amita Chaubal Isha Shah

18 48 59 65 Pg- 07 Pg- 13

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Introduction to raising finance

There are a number of potential sources of finance to meet the needs of a growing business or to finance an MBI or MBO: - Existing shareholders and directors funds - Clearing banks (overdrafts, short or medium term loans) - Factoring and invoice discounting Click to edit Master subtitle style - Hire purchase and leasing - Merchant banks (medium to longer term loans) - Venture capital

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Venture Capital

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Definition

Venture capital is defined as long-term funds in equity or semi-equity form to finance hi-tech projects involving high risk and yet having strong potential of high profitability.

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Venture Capital - Definition

Venture Capital Is not: Cowboy Finance or Rich Mens Toy !

Venture Capital Is:

Equity Liable Capital For Growth Companies (technologies) Usually minority stakes Syndication

Value Adding Linked with entrepreneurs interest Partnership (Funds/company) Active but Non- operational support advice

= Smart Capital, Capital PlusConnectivity, experience, or Involved Capital

Venture capital invests unquoted

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Development In India
The concept was introduced in India in 1987 It was operated by Industrial Development Bank of India. In the same year Industrial Credit and Investment Corporation of India was also started venture capital activity.

Click to edit Master subtitle style

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VC Mainly Looks at?

Promoters Integrity, Relevant Experience, Drive Level. Uniqueness Of Their IDEA Focus On/ Commitment To Their IDEA High Entry Barriers Competitive Advantages Good Market Size & Growth Rates Acceptable Geographic Location Appropriate Stage Of Investment

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Features
Investment in high-risk, high-returns ventures Participation in management Expertise in managing funds Raises funds from several sources Diversification of the portfolio Click to edit Master subtitle style Exit after specified time

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Other features
Investment made in equity, investors wait for 5-7 years to reap the benefits of capital gain. Investments are made in innovative projects Investors does not interfere in day-to-day business affairs. Capital need not to be repaid in the course of business but realized through exist route (stock exchange)

VC Management as Financial Intermediary

VC- Source

Bank, Insurance, Pension Fund, Industries, Private, Government

Fund Raising Initiative Acquisition of Capital Reporting

Investment in Fund

Interme diary

VC Fund

Investment Decision

VC Management Team

Investments in Portfolio Companies

Investment Process Monitoring Value Adding Exit Strategy

VCDemand
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The Venture Capital Process (Fund)

Fund Design Fund Raising Investment Portfolio Management Divestments (exits) = > Distribution to investors
Typically 5-10 Years

(or Evergreen Funds!)

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Liquidation (or Reinvestment)

Exit route for Venture Capital

a. b. c. d. e.

Going Public. Sale of shares to entrepreneurs. Sale of company to another company. Finding a new investor. Liquidation.

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Leasing Finance

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Leasing
A

lease is an agreement between two parties, the "lessor" and the "lessee". The lessor owns a capital asset, but allows the lessee to use it. The lessee makes payments under the terms of the lease to the lessor, for a specified period of time. Leasing is, therefore, a form of rental. Leased assets have usually been plant and machinery, cars and commercial vehicles, but might also be computers and office equipment. 2 basic forms of lease: a.Operating leases 5/5/12

Parties to a Lease
Lessee--User

of the Asset Lessor--Owner of the Asset Trustee--Represents the Creditors with a Third Party Lease

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lease Finance
lease

Finance are lease agreements between the user of the leased asset (the lessee) and a provider of finance (the lessor) for most, or all, of the asset's expected useful life. In India the concept was pioneered in 1973 when the First Leasing Company was set up in Madras.
Eg:

If company wants a car.

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Important characteristics of a finance lease

The

lessee is responsible for the upkeep, servicing and maintenance of the asset lease has a primary period, which covers all or most of the economic life of the asset Extension period for lessee Assets can be sold by lessee on behalf of lessor (after primary lease period)

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Advantage
Provides full finance Flexible Save from recurring cost of finance Absence of restriction

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Advantages Cont..
Tax

benefit Increase the capacity to borrows Useful is case if fast changing technology Faster and cheaper credit

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Disadvantages
No benefit of residential value No benefit of ownership High cost of leasing

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