Stages of Financing

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STAGES OF FINANCING
DR. HETAL JHAVERI

WHAT DO VCs DO

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DR. HETAL JHAVERI

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DR. HETAL JHAVERI

FORMATIVE STAGE
SEED CAPITAL - The first stage of venture capital financing  Major investors -> BUSINESS ANGELS  A genuine seed-stage co. -> not yet established commercial operations  Seed-stage VC funds will typically participate in later investment rounds with other equity players to finance business expansion costs such as sales and distribution, parts and inventory, hiring, training and marketing. EARLY STAGE  For cos that are able to begin operations but are not yet at the stage of commercial manufacturing and sales  Early stage financing supports a step-up in capabilities.  At this point, new business can consume vast amounts of cash, while VC firms with a large number of early-stage companies in their portfolios can see costs quickly escalate. JHAVERI 6 DR. HETAL

STAGE RISK ACTIVITIES

FUNDI NG IN INDIA

FUNDI NG IN US

PERIOD RETUR OF NS INVEST TARGE MENT TED BY VCs (IRR %)

SEED

Very high

•Research •Prototype dev. •Business plan dev. •Product dev •Basic infrastructur e dev

Rs.2.5 mn.

$50 to 5-8 $0.5 mn. years

100% +

START- High UP

Rs.10 mn. to Rs.25 mn.

$0.5 mn to $1 mn.

4-7 years

50%80%

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DR. HETAL JHAVERI

DECCAN AVIATION LTD.
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Early Stage ICICI Ventures Deccan Aviation Ltd is India's first budget airline and the country's largest private sector helicharter company. Promoted by ex-defense officers led by Capt. G. R. Gopinath, Air Deccan has redefined the airline landscape in India and was now not only the country's leading Low Cost Carrier but also the second largest airline in the country. In May 2006, the company raised money from the capital markets. 8 DR. HETAL JHAVERI

START-UP - Supports product development & initial marketing  This type of financing is usually provided to cos just organized or to those that have been in business just a short time but have not yet sold their product in the marketplace.  Generally, such firms have already assembled key management, prepared a business plan and made market studies.  The business is seeing its first revenues but has yet to show a profit.  This is often where the enterprise brings in its first "outside" investors.  High – risk of failure 9 DR. HETAL JHAVERI

MEDISURG SURGICAL LTD.
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Start up GVFL The first of its kind plant in the country for manufacturing health care - import substitution products Market acceptance, late commencement, quality control problems, liquidity problems, not able to achieve forecasted sales, irregularities in maintaining books of accounts, etc. Divested at IRR < 18% after aprrox. 4 years

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DR. HETAL JHAVERI

EXPANSION / DEVELOPMENT STAGE
EARLY GROWTH STAGE / FIRST STAGE
Capital is provided to initiate commercial manufacturing and sales.  Most first-stage companies have been in business < 3years and have a product or service in testing or pilot production. In some cases, the product may be commercially available. EXPANSION STAGE / THIRD STAGE  Capital provided for major expansion such as physical plant expansion, product improvement and marketing, increase working capital etc. 

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STAGE RISK ACTIVITIES

FUNDI NG IN INDIA

FUNDI NG IN US

PERIOD RETUR OF NS INVEST TARGE MENT TED BY VCs (IRR %)

EARLY GROW TH STAGE

Medi um to high

•Mfg. & mktg. •Process creation •Mkt dev. •W/c

Rs.25 mn to Rs.150 mn.+

$0.5 mn to $15 mn.

3-6 years

40% 70%

EXPAN Medi •Mkt. dev. Rs.20 SION um •Geographica mn to STAGE l expansion Rs.200 •Incremental mn.+ W/c 12

$2 mn to $ 20 mn.

3-5 years

30% 50%

DR. HETAL JHAVERI

MOTILAL OSWAL FINANCIAL SERVICES LTD.
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Expansion financing To build fee-based business PE or IPO ? Premoney valuation - $227 mn Offered 9.3% of its equity – 2.6% Bessemer, 6.7% New Vermon UNUSUAL TERM – if MOFSL did not go public...
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