Entrepreneurship

Contents Capital Structure

Concept Features Factors

Capitalization Concept Over-capitalization Under-capitalization

Venture Capital Concept Aims Features

Venture Capital: Financing Stages Conclusion

Capital Structure• Capital is generally defined as the money or property used in a

business.• In financial term the word capital means the total investment in

the form of money, tangible assets like land, building, plant and machinery and so on.

• The composition of debt and equity in overall capital of an enterprise is called ‘capital structure’.

• A financing mix that minimizes the overall cost of business and maximizes its market value is known as optimal capital structure.

• Debt• A debt generally refers to money owned by one party, the

debtor, to a second party, the creditor.

• Equity• The value of an ownership interest in property, including

shareholders’ equity is part of the total capital of a business.

EQUITY

• Debt• A debt generally refers to money owned by one party, the

debtor, to a second party, the creditor.

• Equity• The value of an ownership interest in property, including

shareholders’ equity is part of the total capital of a business.

• Features• Involves minimum cost and maximum yields• Use of debts is within the repaying capital of the

enterprise• Has to ensure effective control over the affairs of the

enterprise

• Depending factors:• Trading on equity• Nature of enterprise• Retaining contrast of a company• Size of the enterprise• Purpose of financing

Capitalization• The total amount of all securities, including long-term

debt, common and preferred stock, issued by a company refers to capitalization.

• Over-capitalization• A situation when an enterprises possesses excess of

capital than warranted• Actual earning are lower than expected• Effects:

• Creates a fall in rate of dividend• Investors lose confidence• Face social rejection• Lose its goodwill

• Under-capitalization• A situation when utilized fund is lower than warranted

by its earning capacity.• In this case the market value of share is higher• Effect:

• Leads to cut-throat competition • Worker demand higher wages• Encourages the management to manipulate the shares

value• Higher taxation is charges by the government

Venture Capital• Concept

VENTURE:•A business project or activity specially one that involves risk.

 

CAPITAL:•Fund employed in any business activity. •Most important factor of production. •No economic entity can function without capital.

 

VENTURE CAPITAL:•Venture capital is a type of private equity capital typically provided by professional, outside investors to new, growth businesses

Venture Capital• ConceptVenture capital means funds made available

for startup firms and small businesses with exceptional growth potential.

Venture capital is money provided by professionals who alongside management invest in young, rapidly growing companies that have the potential to develop into significant economic contributors.

Venture Capital• History• 1946 = first two venture capital firms:

1. ARDC

2. J.H Whitney & Company ;• 1960/1970 = Venture Capital as e synonymous with

technology finance;• 1980 = declining returns caused by the growth of the

industry; • 1990/2000= The Venture Capital Boom and the

Internet Bubble.

• Aims• Fulfills the ambition of entrepreneurs• Instills verve in potential business initiatives• Offers foresight with a sense of direction• Builds the enterprise’s vision• Shares a partnership of exciting success with

the enterprise

• Features• Assumes high degree of risks• Finances high-technology projects• Takes active interest in guiding the assisted enterprise• Gestation period is usually high• Is basically long term- investment & returns are in the

form of capital gains• Liquidate its investment when it reaches certain stage

of profitability • Equity participation

1

Small amount of capital is provided to entrepreneur.

2Seed-money finance

3

Start-up

4 5

First-round financingSecond-round financing

Venture Capital: Financing Stages

6

Third-round financing

7Fourth-round financing

Venture Capital: Financing Stages

Conclusion