entrepreneurship: financial issues › presentations › entrepreneurship...•adr/ gdr financial...
TRANSCRIPT
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Entrepreneurship:
Financial Engineering
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• Who is an entrepreneur?
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Personal traits
• Vision
• Willingness to take Risk
• Decision making
• Leadership
• Passionate
• Creative
• Committed
• Independent
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• “Majority of entrepreneurs fail either when
they lack finance to meet business needs
or when they are not able to commit
appropriate applications of business
finance”
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Financial Networking
• With the increasing integration of Indian
economy with the global economy,
financial requirements of corporate
entrepreneur have undergone tremendous
changes and accordingly financial
institutions in India have re-oriented their
policies/ product range with much sharper
customer focus to suit the varied needs.
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Financial System
• Financial Institutions/financial
Intermediaries
• Financial Products/Financial Instruments
• Financial Markets
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Indian Financial institutions
FI
All India Financial institutions
(11)State Level financial institutes
(46)
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AIFI
All India Devp Banks
IDBI
IFCI
ICICI
IIBI
IDFC
SIDBI
Special Financial Institutions
EXIM Bank
NABARD
Investment institutes
LIC
UTI
GIC
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State Level FIs
State Financial Corporations
(18)
State Industrial
Development corporations
(28)
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Financial Products
• Commercial Papers (CPs)
• Certificate of Deposits (CDs)
• Treasury bills (T-bills)
• Participatory notes (P Notes)
• ADR/ GDR
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Financial Markets
• Money market
• Capital Market
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Financial Management for
Innovative Entrepreneurs
• Financing decision
• Investment decision
• Dividend decision
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Business Funding : Parameters
• Liquidity
• Cost
• Risk
• Time
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Sources of Finance
Long term Sources
• Shares (Equity+ Preference)
• Debentures
• Loan from specialized financial
institutions
• Ploughing back of profits
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Sources of Finance (contd….)
Short Term Sources
• Bank credit
• Customer advances
• Trade credit
• Commercial papers
• Factoring
• Hire Purchase
• Lease financing
• Deferred Incomes
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Investment decision
• Capital Budgeting
• Working capital Management
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Evaluating investment proposals
• Mr Ravinder Modi is facing acute dilemma to select proposals for Project X and Project Y for which the approximate investmentis as follow;
Project X Project Y
Rs 2,00,000 Rs 2,00,000
Financial forecasting reveals that return from project „X‟ is Rs 25,000 p.a for next 12 years and from project „Y‟ it is as follow:
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Illustration (contd…..)
• Project „Y‟
Year Amount
1 40,000
2 50,000
3 10,000
4 50,000
5 10,000
6 30,000
7 20,000
8 15,000
9 40,000
10 30,000
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Financing Working Capital
• Aggressive Strategy
An approach that believes in relying on mainly short term sources as their cost is comparatively very less.
• Conservative StrategyAn approach that believes in relying on mainly long term sources so as to ensure liquidity of funds
• Hedging Strategy
Most Optimal approach that suggests finance current assets through short term liabilities and Fixed assets through Long term/ permanent Liabilities
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Venture capital
• VC represents financial investment in a highly risky project with the objective of earning a high rate of return.
• Venture capital is the risk money, which is used in risky enterprise either as equity or debt capital.
• Capital invested by professionals who invest alongside management in young, rapidly growing companies that have very high potential of growth.
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Incubators
• Non-profit entities that provide value
added advisory, informational and certain
support infrastructure, that includes
productive office environment, finance and
complimentary resources.
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Types of venture capital
• Angel investors
• Venture Capital Subsidiaries set by
Corporations
• Private capital firms
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Modes of Financing
• Equity capital
Financial support in the form of equity fund restricting to maximum 49% to ensure overall control remains with entrepreneur
• Conditional loans
It involves either no interest or coupon payment at nominal rate along with royalty on sales
• Convertible Loans
A loan that is converted into equity if loan payments are not made within appropriate time.
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Stages of Financing
Early stage FinancingSeed Capital
Start Ups
Second round Financing
Later stage financingDevelopment Capital
Expansion Finance
Replacement Capital
Buy Outs
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SFIs and their financing Schemes
• Risk capital and Technology Finance (RCTF)A wholly owned subsidiary of IFCI established with the objective of providing financial support in areas of innovative technology, energy conservation, environment Pollution etc.
• Technology Development and Investment Corporation of India (TDICI)
A joint venture initiated by UTI and ICICI .Apart from financial support they also provide consultancy services and business management
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SFIs and their financing Schemes
• Seed Capital Scheme
IDBI‟s scheme is intended to help crrate a
new generation of entrepreneaurs who
have requisite traits but lack financial
support.
Project cost- Rs 5 Lakh-Rs 250 Lakh
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Venture Capital Funds by
Commercial Banks
• SBI CAPS
• CANFINA