angel, vc, pe

8/8/2019 Angel, VC, PE

1/20

Angel Investors, VCs, Hedge

Funds and Private Equity

Investors


2/20

Economics of Investment

Certain economic agents (individuals, households

and corporations) have excess of income over their

consumption (because of their plan to defer

consumption).Certain other agents need more money than they

have (temporarily).

Intermediaries exist who bring together the above

two types for economic gains (commissions,

brokerage).


3/20

HNWI

Households

Corporates

Angels

Banks

Mutual Funds

PensionFunds

Insurance Cos

Venture

Capital

Funds


4/20

Nature of these investors

Unconventional

Make highly risky investments

Deal with difficult Asset Pricing and Valuation

Are free of regulatory issues


5/20

Target Companies

Startups

Early stage companies

Private companies in the scale-up phase

Pre IPO financing rounds


6/20

Sources of Finance

Equity (common stock, preferred stock) Loans: long term, short term

Lease finance

Inter corporate deposits

Bank cash credit and overdraft limits

Debentures

Fixed deposits

Grants from government agencies Supplier credit and deferred payments

Credit cards


7/20

Modes of Acquisition

Primary market:public issue, rights issue

(flotation costs)

Secondary market (listing costs)

Private placement (individual or institution)

Banks and mutual funds

Pension funds, insurance companies Debenture issue

Fixed deposits


8/20

How to compare various sources ?

Holding period (Duration)

Repayment terms

Interest rate

Other strings attached

Pledges and collaterals

Finance marketing costs and lead time


9/20

Angel Investors

High Net Worth Individuals

Successful serial entrepreneurs (also

parallel entrepreneurs) Good knowledge of technology and

business acumen

Have country-specific preferences (NRI,

NRC)


10/20

Examples

James Clark (SGI to Netscape)

Prakash Bhalerao (Alopa Networks)

Kanwal Rekhi (Exodus Communications)

K.Chandrasekhar, B.V. Jagdeesh

Sabeer Bhatia (Hotmail Arzoo Navinmail)

Rakesh Mathur (Junglee to Purple Yogi) Suhas Patil (Cirrus Logic)


11/20

Peculiarities of Angel Investment

Quick decision-making

Low level of funds

One-two days a week of commitment after all

they are putting their own money on the table!!

Uncle-nephew relationship


12/20

Venture Capital Firms

VCs look for private equity for youngcompanies

Mezzanine VC firms

Scale-up VC firms Technology / Space specific

Biotechnology

Networking

Chips and hardware

E Commerce


13/20

Structure of a VC Firm

General partners 3-5 (themselves successful entrepreneurs):

put about 2-3% of the corpus

Limited partners (Pension funds, Retirement plans): Put

97% corpus

Corpus = Fund, typically ranges between USD 50M to 2B

Management fee is about 2-3 % per year

Funds about 5-30 new companies per year

Employs junior managers for due diligence(associates) After IPO/Acquisition, general partners keep 20% of gains,

limited partners get Principal+80%


14/20

VC Firms Annual Throughput

10,000 qualified business plans

1000 meetings

400 company visits

25 new investments


15/20

Role of the VC in the Portfolio Company

Negotiate aggressive terms

Select strong co-investor

Help in constituting the Board of Directors

Assist in Recruitment

Market validation

Strategic relationships

Pursue liquidity aggressively


16/20

Valuation: Bargaining Point Causes of mismatch

Asymmetry of information

Ego Greed

Factors that drive the valuation

Technology, ESOP rates, management

Orders in hand, scalability, brand strength

Patents and copyrights


17/20

Difficulties in Valuing Start-up

Companies

Immediate earnings are negative

No past history

No comparable companies

No market prices


18/20

VC Fund Raising Process

Introduction (phone call, e-mail, referral)

Submit business plan / executive summary

Presentation

Company visit

Due diligence (management reference checks,customer calls, market analysis)

More meeting(s)

Term sheet

Legal / Closing


19/20

Private Equity Investment

Large, profitable private limited or deemed

public companies who need finance but dont

want to do an IPO

Examples: Patni Computers, Persistent

Systems Limited

Deal is usually in tens of crores


20/20

Some deals in the last 6 months

Company Investor InvestmentUSD mill

ApproxValuation

Progeon Citigroup 20 100

Glenmark

Pharma

CDC Capital 10.3 74

TV Today ICICI Ventures, GE

Capital

1.5 25

Patni Computers General Atlantic

Partners, GE Capital

108 530

Strand Genomics Westbridge Capital

Partners

4.6 9.5

angel, vc, pe

Documents