Question

Naveen after completing his M. Tech in Nano Technology wanted to start his own business. He thought to manufacture sophisticated instruments used in surgery. He knew that his knowledge of Nano Technology will help him in manufacturing these instruments. According to him such instruments will help the surgeons to operate upon the patients with accuracy, with minimum blood loss and quick post operation recovery. Such types of instruments are used in advanced countries only and there was a risk in marketing the same. The cost price of machinery required, for manufacturing such instruments was very high and more research was required in this field of Nano Technology. For seed funding, Naveen approached. ‘Himani Capital Ltd.’ who finance such types of projects. ‘Himani Capital Ltd.’ after analysing the proposal agreed to provide seed capital to Naveen. Explain the different stages of ‘Early Stage Financing’ to seek venture capital finance after the one discussed above.[CBSE Delhi 2015]

Answer 1

Answer:

1. Pre-start up and start up finance: A business plan is presented by the entrepreneur to the VC firm. A management team is being formed to run the venture. If the company has a board of directors, a person from the VC firms wall take seats at the board of directors. The VC firm monitors the feasibility of the product and the capability of the management-team from the board of directors. 2. Second round financing: This is the first encounter with the rest of the market. The entrepreneur, at this stage, needs assistance from the Venture Capitalist for expansion, modernization, diversification so that the economies of scale and stability could be attained.