Chapter 1

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A mechanism where investors support entrepreneurial talent by providing finance and business skills for long-term capital gains.

Venture Capital

Funding opportunities for growth, valuable guidance, building networks, no repayment obligation, trustworthy investors, and easy to locate.

Advantages of Venture Capital

Dilution of ownership, early redemption, time-consuming decisions, tedious approach, high return expectations, periodic fund release, and potential under-valuation.

Disadvantages of Venture Capital

Involves adding capital to existing businesses, owning 100% of the business, and investing larger amounts ($100 million or more).

Private Equity

__________ invests in new businesses, owns 50% or less, and invests $10 million or less, while private equity invests in established businesses, owns 100%, and invests $100 million or more.

Venture Capital

Steps include fundraising, evaluation, investment, governing for growth, exit through IPO, and distributing returns to investors.

Funding Process (Approaching Venture Capital for funding as a Company)

-          Source Capital from Banks, Corporations, Funds

Fundraising

Evaluate Venture Opportunities

Evaluation

-          You have to choose your investment / Invest Capital into Enterprises

Investment

-          You have to gather all your sources and all activities that will give your profit / Govern Business to Profitable Growth

Governing

-          Main goal is to sell through IPO / Generate Liquidation through IPO

Exit

Distribute Returns to Investors

Distribution

Involves presenting a business plan, market potential analysis, financial projections, and management details to secure funding.

-          To have your business plan ready / There should be an executive summary of the business proposal

-          In gaining a venture capital funding, you have to present your business plan / Description of the opportunity and the market potential and size

-          All your visions and missions, marketing strategies, financial plan will all be included / Review the existing and expected competitive scenario

-          It is a key component in getting a funding / Detailed financial projections

-          Details of the management of the company

There is a detailed analysis done of the submitted plan, by the Venture Capital to decide whether to take up the project or no.

Idea Generation Phase

Clearing queries and solving problems to move forward with the investment.

-          Process wherein you would clear all queries and try to solve arising questions and problems by the investors.

Start-up Phase

Finalizing funding agreements, negotiating term sheets, completing legal documents, and making funds available.

-          This is the phase wherein you are trying to finish the agreement of your funding.

-          The term sheet is generally negotiable and must be agreed upon by all parties, after which on completion of legal documents and legal due diligence, funds are made available.

Malapit ng ma-close yung deal

Ramp-up Phase

Involves exiting the market if agreements cannot be reached, emphasizing the importance of planning.

-          If the capitalist do not agree, they would exit the market.

You can see the importance of planning

Exit Phase

Early Stage Financing (Seed, Start-up, First Stage), Expansion Financing, and Acquisition or Buy-out Financing (Acquisition, Buy-out, Acquisition Finance, Management or Leveraged Buyout Financing).

Types of Venture Capital Funding

-          They are both kind of investment

-          Exit by selling investment

Similarities of private and venture capital

Investors in Venture Capital

Venture Capitalist

-          Is all about fundings start-up businesses

-          Long-term financing

-          Funding up the Capital

-          Start-up

Venture Capital

Seed Financing and Start-up Financing

1.)    Early Stage Financing

-          you are simply financing a start-up loan / haven’t started any start-up activities

Seed Financing

as compared to seed financing, they have already started start-up activities and they are about to be finished, however they needed an additional financing. given to companies for the purpose of finishing the development of products and services.

Start-up Financing

the start-up capital is already furnished or ubos na and that’s the reason they are getting additional start-up financing. / Companies that have spent all their starting capital and need finance for beginning business activities at the full scale are the major beneficiaries of the _________

First Stage Financing

-          The only goal here is expansion

-          You are getting a financing for the sole purpose of your start-up

-          Offers short-term interest

-          Silent in the period of interest (short or long-term)

may be categorized into second-stage financing, bridge financing, and third-stage financing or mezzanine financing.

1.)    Expansion Financing

is provided to companies for the purpose of beginning their expansion. It is also known as ‘mezzanine financing.’ It is provided for the purpose of assisting a particular company to expand in a major way.

Second-stage financing

-          may be provided as a short-term interest-only finance option as well as a form of monetary assistance to companies that employ the Initial Public Offers as a major business strategy.

Bridge financing

-          you are trying to get the portion of the company and not the whole

Acquisition

-          you are saving the company for the verge of exiting the market or simply buying the whole company

Buy-out

-          is categorized into acquisition finance and management or leveraged buyout financing.

Acquisition or buyout financing

assists a company to acquire certain parts or an entire company.

Acquisition financing

-          helps a particular management group to obtain a particular product of another company.

Management or leveraged buyout financing