Confidence Building
Measures
The very thought
of disclosing the idea is not easily acceptable with
an Entrepreneur and a VC will not put his money at
stake without going through the entire idea. These
issues are the blocks in the mindset are the main
impediments in the whole process. So need arise for
some confidence building measures. Possible
confidence building measures can be a carefully
drafted non-disclosure agreement with the dealing
VC.
First step is to ascertain the legal nature of the
entity and whether the person dealing is the true
and legally authorized person to enter into contract
or deal in such transactions. It is always advisable
to ask for the Articles of Association and
memorandum of the company, its registration and
affiliations with Securities Exchange Board of
India.
Some of the Legal Protections are:-
1. PATENTS: The best way is to look for
the innovation and file a Patent Application, this
is best way as a the Patent Office gives a formal
receipt of the patent Application along with the
date, name of the inventor this evidence is
recognized by courts or arbitration tribunals;
2. DESIGN: This is another way to
protect ornamental or external design of the
product. This is same as Patent and legally
recognized evidence is generated;
3. COPYRIGHT: Though it is a weak
protection nonetheless if no legal remedy depending
on the case it is advised to go for copyright
protection;
4. ARBITRATION: Insert an arbitration
clause in the Non-disclosure agreement. So any
authority named in the clause can adjudicate upon
any dispute so referred;
OBJECTIVE
The objective of the
VC scheme is to provide a window to entrepreneurs
who have thought of ventures having special
characteristics to be innovative but at the same
time may not qualify for assistance through the
conventional route of loans and financing. Projects
involving new and untried/untested
processes and technologies which have scope for
commercial application with characteristics of high
risk and high return are one example of the type of
projects which a VC looks for.
ELIGIBILITY
Though the requirement and eligibility criteria
differ among different VCs, but generally any
entrepreneur who has a good idea or invention in
terms of process or product that is different from
existing thing, even if it is new and untested.
Ventures involving high risk and high return are
preferred.
While great ideas, innovative technologies, and
favorable market conditions are good reasons, the
primary factor is strong and diverse management team
with solid operational experience and deeply rooted
domain expertise. VCs after investment remain
actively involved in board membership and help in a
variety of functional, strategic and financial
roles.
NATURE OF ASSISTANCE
The nature of assistance would depend upon needs and
requirement of the project. A VC invests in the
company and expects that the venture company would
go in for an IPO within a reasonable period of time
to offer an exit route or buy back.
EXTENT OF ASSISTANCE
Extent of assistance shall be decided on a
case-to-case basis on detailed assessment of the
requirements. No minimum/ maximum limits are fixed
in respect of the quantum of assistance.
PROMOTERS CONTRIBUTION
The promoter’s contribution in terms of involvement
and finance is very important in deciding the fate
of the venture. The quantum of promoters’
contribution is not fixed and vary from case to case
basis. But it is expected that the promoters have
reasonable stake in the venture, their own resource
raising capacity, etc.
SECURITY
In normal situations the VCs don't insist for
security and collateral but sometimes security
requirements are considered in some cases.
VENTURE SELECTION
When a person approaches a VC with a proposed
business plan a team of experts possessing
specialisation relevant to the projects concerned
evaluates Projects of their feasibility they
normally hold a discussion with the promoters to
take a stalk of the details of the project.
Some unwritten and common requirement that are by
Venture Capitalists:
Management
A sound management team comprising professionals
endowed with entrepreneurial traits & skills,
integrity & ability to innovate and possessing rich
experience in the relevant field with a total
commitment to the venture. Capabilities of the
promoters to carry forward the idea to market ready
product or service.
Market and Competitive Advantage
Proposals that address a rapidly growing market
opportunity and foresee long-term competitive
advantage in terms of quality, price of product and
growth potential would be of interest to SIDBI. The
proposal should further demonstrate a potential for
above average profitability leading to attractive
returns on investment.
IDEA or the Technology
The technology can be untried/untested or, at least,
new in region but at the same time its application
in the proposed project should establish its
feasibility and workability or import substitutive
technologies.
BUSINESS PLAN:
The primary document, which an entrepreneur should
be ready with, is a Business Plan that should cover
the following aspects are adequately covered: -
1. Executive summary giving objective and brief
details of the project, project cost and financial
requirements. Briefly outline his objective; what
exists in the market as on date, his contribution or
innovation, what benefit it accrues to the users,
cost factor comparison, special legislation
prevailing, target users, and other details that are
necessary for the product.
2. Resume (with brief write up on the interest,
experience, qualification) of the promoters and
management team with references from experts of the
field if possible, this can make a good impact, for
example, a student with an Aerospace Engineering
degree builds a prototype of a equipment finding use
in aviation so a reference letter of his supervisor
or lab in charge will be helpful.
3. Innovative content of the product/service and
technology with its distinct characteristics. If a
statement of novelty and innovation is outlined
separately and the difficulty in the field is
mentioned, this would be a handy document. A
comparison with the existing product or analogous
field will be helpful along with geographical
comparison.
4. Details of credit facilities, grants, loans
if any, availed by the promoter from any bank/
Financial Institution, organization.
5. Detailed shareholding and stakes within the
company (existing and proposed)
6. Human resources and requirement in future and
mode of acquiring and special training, minimum
education criteria, experience.
7. Details of performance of the company during
the preceding years (where applicable) covering
financial performance, nature/ type of operation,
projects completed, products developed, competitive
strength etc.
8. Details of technical tie ups/
collaborations, existing or proposed, if any.
9. Quality systems documentation adopted and
milestones achieved in obtaining Quality
certifications like ISO 9000, if any.
10. Marketing strategy: How will the product or
service reach to target customers is a very
important ingredient in a business plan, Intended
geographical areas and time frame within which the
targets are to be covered. Online marketing mode and
special adaptations for the same;
11. Existing Clients added major orders executed
for them, if applicable.
12. Details of ratings (if any) certifications from
a trusted third party about worthiness of the
company, if any.
13. Details of operations like sales office,
overseas site offices, subsidiary/ associate
companies set up abroad for marketing/offshore
development
14. Total Cost of machinery, hardware, and
proposed means of finance and possible vendors or
suppliers to give timely supplies.
15. Present status of the proposed project. Whether
it is in idea stage, prototype, or any other stage.
16. Financial projections with underlying
assumptions: Like the minimum sales and expenses.
17. Implementation schedule: This is very important
yet difficult to make, since these are
interdependent and can change with various unrelated
factors, like marketing target will change if the
purchase of required machinery is delayed, and so
on, but it is advisable as the time overrun will
affect the cost of the project;
18. Risk analysis: This is another area where some
VCs insist that a study should be made. Assessing
the risk in especially when technological changes
are volatile and disruptive is very difficult task
but depending on case-to-case basis some analysis
can be documented taking insight from latest
happenings. One has to think of methodologies for
analyzing and mitigating financial and security
risks at the level of business operations. Risk
analysis includes risk to human health and the
environment.
19. Exit plan: This is the final step to complete
the Venture capital transaction where the Venture
Capital invests in a company and take a percentage
of equity that will depend upon various factors with
a assumption that one day they will get good money
by selling their share. The process of VC is
completed when the company matures and goes public
and makes initial public offering. At this stage the
promoter can also buy back from VC or a third party
purchases that equity after valuation.
20. Particulars of contact persons, website
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