Unit II

Promotion of a Venture:

Foundation of an enterprise is the project or the venture Venture is a plan or an idea which is intended to be carried out in the future Ventures can be industrial, agricultural, Production, Services etc. Entrepreneur originates the idea, makes a detailed study of various aspects of project,

estimate the profit, finally implements it. Setting a New Business not an easy Task Various difficulties to be faced in creating the business and making it successful

An entrepreneur wanting to start a new venture has to take decisions with regard to following:-

1. SELECTION OF A LINE OF BUSINESS:- Proposed idea analysed to find out whether the business would be profitable, including

probable risks and the capital required. Conduct survey of various business opportunities. Make feasibility reports, surveys Estimated Costs, Profits, Returns Analysed

2. CHOICE OF FORM OF OWNERSHIP Could be sole proprietorship, P.Ship or a Joint stock company Choice of form will determine the authority of the entrepreneur Size of business also will determine the form of organ. Company form more suitable for large business Sole Trader / P.Ship for Small / Medium Capital requirements, Managerial Skills, Coverage will also decide the form

3. SIZE OF BUSINESS Size of the firm influenced by various factors like Technical, Managerial, financial and

Marketing Some factors favour the large size of business while others operate to restrict the scale of

operation Wherever Entrepreneurs confident of marketing their products widely and arrange large

resources can start large business For new ideas / business beginning can be made on small / medium scale. Forces of risks and uncertainties can restrict the size of business Basic purpose of the optimum size to achieve max. output at minimum cost

4. Financing the Proposition Adequate amount of capital for starting and running the business to be arranged. Capital to be arranged for fixed as well as working capital Large businesses to arrange capital from various sources.

5. Location of Business One of the very difficult decisions Location to be reviewed from the point of view of access to raw materials, labour, power,

Markets and services like banking, Insurance, Transport, communication. Location has to be optimum to have minimum costs of production from and distribution

6. Machines and Equipment Choice will depend upon availability of capital, size of production, nature of production processes. Mechanisation needs to be optimum, leading to higher productivity.

7. Human Resources Right kind of Skilled, Unskilled and Managerial Staff necessary to avoid huge losses of

time, money and effort. Proper Training and Motivation to be provided.

8. Plant Layout An efficient Plant Layout allows materials to move through rapidly and the most direct

way possible. It reduces Transport, Materials Handling, Clerical and other Costs and increases

inventory turnover. Experts Services can be used. Must reduce chances of delay and bottlenecks in the Production Systems.

9. Procedural Formalities No formalities in sole Traders and Partnerships. Co. exposed to greater procedural formalities both at incorporations and during its life. Incorporation compulsory, documents and fee deposited with the Registrar of cos. A public co. also obtains certificate of commencement. Co. also required to send periodical returns to the registrar of cos. and stock exchange

authorities.

10. Tax-Planning Entrepreneurs to visualize well in advance the various taxes to be paid.

11. Launching the Business Enterprises:- Promoter actually arrange men, material, machinery, money and the managerial ability. Makes organ. Structure, various deptts. Mkg., Prod., Finance, HR Made to accomplish

goals. Advtg. Sales Promotions to be done.

PROBLEMS IN SETTING UP A NEW VENTURE

I. Lack of Managerial experience or poor knowledge of the particular line of production:-

All-round knowledge about various aspects of Production, Processes, Management Not known – what, how and when to produce, how to market the products, maintenance of accounts, financial transactions understanding etc.

None of the above areas can be ignored Changing technology, methods of production not known.

II. Lack of Accounting knowledge/ system

Information, Understanding about costs, gross margins, break-even point, depreciation is lacking, thus decision making may become difficult.

Difficult to maintain proper accounting Data etc.

III.Wrong / Inadequate Estimate of cash requirements or faulty capital planning / budgeting.

Proper Financial Planning Essential for proper functioning of the enterprises New enterprise feels cash crunch when:- Production does not reach optimum level Production is below Break-Even Point Fails to Create and Increase the Demand for products. Result – wastage of Finance Delay in various activities will cause need for additional finance.

IV. Lack of Knowledge About Tax-Related Matters

May not be Aware of provisions related to Income Tax / Sales Tax, Obtaining of Sales Tax Registration at the right Time, Filing Tax – Returns.

V. Erratic Shortages of Raw Materials.

VI. Flourishing Black market

VII Gaps between official promise and performance by various deptts.

VIII. Irresponsible attitude of employees.

IX. Rising cost of capital & credit.

X. Arrogance and Non Co-operative Attitude of Bankers

XI. Inadequate common services like road, power, water in the area

XII. Emerging competition

XIII. Lack of knowledge about inventory management

Opportunity Analysis;

Opportunity analysis is the strategy of assessing the potential for a change or enhancement to enhance the generation of revenue. The type of opportunity will vary, from small chances within a current production model that leads to expense reduction or increases overall efficiency, to the launch of new product lines that will increase profitability for the business as a whole. Whether the goal is to increase profits by reducing expenses or broadening the range of products offered, undergoing an opportunity analysis helps to provide an understanding of what effects, positive and negative, are likely to take place if a particular approach is implemented.

With any type of opportunity analysis, three key questions must be answered in order for the analysis to be effective. First, what are the benefits of implementing this opportunity? Next, what adverse effects are likely to occur when the implementation takes place? Finally, how will the implementation affect the overall function of the operation, and is the result worth making the change?

The first issue to address in conducting an opportunity analysis is to identify the benefits that the change will bring about. For example, if a bread company decides to broaden the product line by offering hot dog buns along with its loaves, the benefits may be meeting a need of current consumers who will now purchase buns along with loaves, leading to increased profits for the business. The analysis will look closely at what expense is involved in adjusting the production process so the buns can be produced, how the packaging should be designed, and what the unit price for a package of buns must be in order to be competitive in the marketplace. If it is determined that the associated costs can be offset by the sale of the buns and earn a profit for the venture, there is a good chance that this opportunity is worth pursuing.

Once it is determined that there is value in pursuing the idea, the opportunity analysis will then focus on the potential negative effects of implementing this new strategy. For example, how will the production of buns impact the production of loaves? If the bread production is adversely affected to the point that the company produces fewer loaves and cannot meet its production commitments to current vendors, then the profit from the bun production may be completely offset, leaving the company with no additional revenue to show for its efforts.

Any worthwhile opportunity analysis must look at the long-range effects associated with the change that is being considered. Often, this means looking at not only issues of production and cost, but also intangible factors. Should the addition of buns to the production process mean that consumers cannot buy the loaves they want, then they are likely to take their business elsewhere, an action that effectively undermines not only the profits from the loaves but also reduces the consumer market for the buns. Thus, the change would have a negative effect on revenue generation over the long-term and not be worth the effort.

External Environmental Analysis: Economic, Social and Technological; Competitive factors;

1. Political Factors

This exercise dissects the political, governmental, and legal aspects of a particular business. Both local and global environments are studied because federal, state, local, and foreign governments are major regulators, deregulators, subsidizers, employers, and customers of organizations. The growing interdependence among economies, markets, governments, and organizations underscores the importance of considering the political variables affecting the conception, development, and operation of any business.

Existing and potential developments bearing on government-driven tax laws, trade quota and restraints, regulatory framework, industry subsidies, investment incentives, local content manufacturing requirements, regulated pricing, trade agreements, economic treaties, and bureaucratic processes are major political realities that must be taken into account when planning for a business. National political stability is also a key consideration.

The complexity of today's political landscape is exactly the reason why strategists now spend more time anticipating and influencing public policy actions. Entrepreneurs make sure that they have more time meeting government officials, attending government-sponsored conferences, rendering public speeches, issuing press releases, and becoming visible in trade groups, industry associations, and other congregations where updated political developments can be learned.

2. Economic Factors

Economic analysis, a comprehensive study of national, regional, and global economic performance and trends, represents a highly important phase of strategy development for planned, start-up, and growing businesses. Economic factors have direct impact on the potential attractiveness of various business ventures.

Economic analysis yields indications on numerous variables such as: shifts in nature of economy (e.g. US shifting to a service economy), availability of credit, level of disposable income, spending propensity of people, interest rates, inflation rates, government deficits, gross domestic product trends, consumption patterns, unemployment trends, foreign currency fluctuations, stock market trends, demand shifts in various products and services in different locations, import and export trade, price indexes, monetary policies, fiscal policies, and tax rates, including economic policies of other countries and the European Economic Community.

The U.S and world economies have suffered extended severe distortions. As a result, businesses floundered and resorted to manpower cutbacks, with several thousands of small, medium, and big enterprises forced by economic circumstances to close. The U.S. housing meltdown is a clear

example of how adverse economic factors could bring down huge businesses and industries. Millions of displaced employees are now being pushed to become entrepreneurs to make a living, with the United States becoming more entrepreneurial every day. This development reinforces the importance of analyzing economic forces before and during the course of any business.

3. Social Factors

The social component of strategic analysis relates to assessing the social, cultural, demographic, and environmental profiles of addressable markets.

In the U.S., for instance, cultural, demographic, and environmental trends are shaping the way Americans live, work, produce, and consume. America is an aging society, and getting less Caucasian in racial mix. The oldest members of America's no less than 76 million baby boomers plan to retire in 2011, creating deep concern as to who will pay their social security and Medicare. Americans age 65 and older will rise to 18.5% of the total population by 2025. The U.S. Census Bureau estimates that the number of Hispanics will increase to 15% of the total population by 2021, and will become a bigger minority group than Afro-Americans. More and more Americans move in a population shift to the South and West and away from the Northeast and Midwest. Americans are becoming less interested in fitness and exercise. Decimation and degradation of America's natural environment is the greatest threat to business and society, except for terrorism. World population passed the 6 billion mark, with the U.S. having just about 300 million people; this leaves billions of people outside the U.S. who may be markets for American products.

The sample inputs we had just presented typify the kind of information that an analysis of social factors can unravel for anyone who is in business, or who intends to go into it. This information helps pinpoint the segments or niches that need to be specifically served for competitive advantage.

4. Technological Factors

Technology is a business enabler that has revolutionary impact on the actual conduct of business. It contributes to achieving desired business productivity and efficiency. The Internet serves as a good example; what used to be impossibility in instantaneous global communication has become a cold reality and an urgent necessity for every business in order to succeed. The Internet, including its e-commerce and social networking adjuncts, continues to change the nature of opportunities and threats in business. It alters product life cycles, increases distribution speed, creates new products and services, changes economies of scale, redefines business relationships, and propagates borderless transactions. In short, the Internet has become an indispensable business tool.

Another good example of enabling technology application refers to the advancements in superconductivity systems, which increase the power of electrical products by lowering resistance to current. These improvements revolutionize business operations, especially in transportation, utility, healthcare, electrical, and computer industries.

Technology, however, is a threat, a disruptive element that can cause monstrous operational problems for businesses that fail to keep pace with technological trends and innovations. This disruptive impact amplifies the essence of evaluating the technology issues surrounding the viability of a business. For example, by combining high technology and low-cost massive manpower, China-based businesses have achieved unprecedented global competitiveness.

5. Competitive Factors

An equally important part of external assessment is identifying rival firms and ascertaining their strengths, weaknesses, capabilities, opportunities, threats, objectives, and strategies. Good competitive intelligence in business, like in the military, remains to be one of the key factors for success. Weaknesses of competitors can signify external opportunities, while major competitive strengths can mean key external threats. The more competitive information is collected, the more it is advantageous for a company as it possesses a good basis for strategies.

While collection of competitive information is a difficult task, the Internet has been the leading remedial source for such information. Many strategically-minded companies go to the extent of adopting a responsive competitive intelligence strategy, which is a systematic and ethical process for gathering, processing, and organizing information about competitor's activities and general business trends to support the attainment of business goals.

Competitive intelligence programs seek to provide a general understanding of an industry and its competing players, identify the vulnerabilities of competitors and assess the impact of strategic actions against them, and know the potential competitive moves that can jeopardize a firm's position in the industry. The outstanding benefits of competitive intelligence include increased revenues, lower costs, and better decision-making.

Legal requirements of establishment of a new unit and Raising of Funds;

LEGAL REQUIREMENTS OF ESTABLISHMENT OF A NEW UNIT INCORPORATION OF A COMPANY FILING OF DOCUMENTS: THE FOLLOWING DOCUMENTS ARE REQUIRED TO BE FILLED WITH THE REGISTRAR OF COMPANIES FOR THE INCORPORATION OF JOINT STOCK COMPANY.

1. MEMORANDUM OF ASSOCIATION: IT IS THE MOST IMPORTANT DOCUMENT TO BE FILED WITH THE REGISTRAR. IT IS ALSO CALLED CHARTER OF THE COMPANY. IT CONTAINS THE NAME OF THE COMPANY, PLACE OF REGISTERED OFFICE, OBJECTS OF HE COMPANY, THE LIABILITY OF MEMBERS, THE AMOUNT OF ITS AUTHORISED CAPITAL ETC. IT MUST BE SIGNED… …..BY AT LEAST SEVEN PERSONS I IN HE CASE OF PUBLIC LIMITED COMPANY. THE MEMORANDUM MUST BE PRINTED, DIVIDED INTO PARAGRAPHS AND NUMBERED CONSECUTIVELY. IT IS THE FOUNDATION ON WHICH THE SUPERSTRUCTURE OF THE COMPANY IS BUILT. IT DEFINES THE ACTIVITIES AND POWERS OF THE COMPANY.

2. ARTICLES OF ASSOCIATION: IT IS ANOTHER IMPORTANT DOCUMENT. IT CONTAINS RULES AND REGULATIONS FOR THE INTERNAL MANAGEMENT OF THE COMPANY. PRIVATE LIMITED COMPANIES MUST PREPARE THEIR OWN ARTICLES. IN THE CASE OF PUBLIC LIMITED COMPANIES, THE PREPARATION OF ARTICLES IS OPTIONAL. A PUBLIC LIMITED COMPANY WHICH DOES NOT PREPARE AND FILE.. ….ARTICLES CAN ADOPT THE ARTICLES STATED IN TABLE A OF THE COMPANIES ACT. THE ARTICLES PRESCRIBE THE RELATIONSHIP AMONG THE SHAREHOLDERS THEMSELVES AND THE RELATION BETWEEN T HE SHAREHOLDERS AND THE COMPANY.

3. LIST OF DIRECTORS: THIS LIST CONTAINS THE NAMES, ADDRESSES AND OCCUPATIONS OF PERSONS WHO HAVE AGREED TO ACT AS THE FIRST DIRECTORS OF THE COMPANY. THERE MUST BE AT LEAST THREE DIRECTORS IN THE CASE OF PUBLIC COMPANY AND TWO DIRECTORS IN THE CASE OF PRIVATE COMPANY.

4. WRITTEN CONSENT OF DIRECTORS: THE WRITTEN CONSENT OF THE PERSONS WHO HAVE AGREED TO ACT AS DIRECTORS OF THE COMPANY HAS TO BE FILED.

5. DECLARATION REGARDING QUALIFICATION SHARES: THE DIRECTORS SHOULD GIVE AN UNDERTAKING THAT THEY HAVE AGREED TO PURCHASE AND PAY FOR THE QUALIFICATION SHARES ALONGWITH OTHER SHAREHOLDERS.

6. NOTICE OF REGISTERED OFFICE: AT THE TIME OF INCORPORATION, ADDRESS OF THE REGISTERED OFFICE OF THE COMPANY, STATING THE STATE IN WHICH IT IS GOING TO BE LOCATED IS TO BE FILED. DUE TO ANY REASONS IF IT WAS NOT FURNISHED, IT MUST BE FILED WITHIN 30 DAYS FROM THE DATE OF INCORPORATION.

7. STATUTORY DECLARATION: A STATUTORY DECLARATION BY AN ADVOCATE OR SECRETARY OR DIRECTOR OR CHARTERED ACCOUNTANT OR ANY OTHER PERSON WHO HAS TAKEN PART IN THE FORMATION OF THE COMPANY, STATING THAT ALL PROVISIONS OF THE COMPANIES ACT WITH REGARD TO THE REGISTRATION HAS BEEN COMPLIED WITH.

8. PAYMENT OF STAMP DUTY AND REGISTRATION FEE: ALONGWITH THE ABOVE DOCUMENTS, THE NECESSARY STAMP DUTY, REGISTRATION FEE AND FILING FEE ARE TO BE DEPOSITED WITH THE REGISTRAR. IF ALL DOCUMENTS ARE FOUND TO BE CORRECT AND IN ORDER, THE REGISTRAR WILL ENTER THE NAME OF THE COMPANY IN THE REGISTRAR OF COMPANIES AND WLL ISSUE A CERTIFICATE KNOWN AS CERTIFICATE OF INCORPORATION.

9. CERTIFICATE OF INCORPORATION: IT IS ISSUED BY THE REGISTRAR OF COMPANIES WHEN ALL FORMALITIES CONCERNED WITH THE REGISTRATION HAVE BEEN FULFILLED. THE MOMENT THIS CERTIFICATE IS ISSUED, THE COMPANY ACQUIRES A SEPARATE LEGAL STATUS. THE CERTIFICATE OF INCORPORATION…. … BEARS THE SERIAL NUMBER, DATE OF INCORPORATION AND THE SIGNATURE AND SEAL OF THE REGISTRAR OF COMPANIES. IT IS CONCLUSIVE PROOF THAT ALL LEGAL FORMALITIES REQUIRED FOR INCORPORATION OF A COMPANY HAVE BEEN DULY FULFILLED

CERTIFICATE OF INCORPORATION

I hereby certify that ……………………………………. (name of the company) is this day incorporated under the Companies Act 1956, and that the Company is limited.Given under my hand at Delhi, this seventh day of June, two thousand………………..Fees: Stamp Deed Rs. ………………Stamp Duty on Capital Rs. ………………

Sd/- Registrar of Companies

Maharashtra

EFFECTS OF CERTIFICATE OF INCORPORATION: THIS IS THE CONCLUSIVE EVIDENCE THAT ALL THE REQUIREMENTS OF THE COMPANIES ACT IN RESPECT OF REGISTRATION HAVE BEEN COMPLIED WITH. EVEN A COURT CANNOT QUESTION THE VALIDITY OF INCORPORATION. IF LATER ON, IT IS FOUND THAT THE OBJECTS OF THE COMPANY WHICH HAD BEEN GRANTED A CERTIFICATE OF INCORPORATION WERE …. ….ILLEGAL, THE ONLY THE ONLY EFFECT WILL BE THAT THE OBJECTS THE COMPANY CANNOT BE LEGALLY EXECUTED. THE COURT HAS NO POWER TO ANNUAL THE CERTIFICATE OF INCORPORATION GRANTED TO A COMPANY.

COMMENCEMENT OF BUSINESS

A PRIVATE COMPANY CAN COMMENCE BUSINESS IMMEDIATELY AFTER INCORPORATION, BUT A PUBLIC COMPANY, HAVING SHARE CAPITAL, HAS TO COMPLY WITH SOME MORE FORMALITIES BEFORE IT CAN COMMENCE BUSINESS. FIRST IT MUST COMPLETE ALL FORMALITIES CONCERNED WITH RAISING OF CAPITAL, …. …..SECOND, IT SHOULD ALLOT SHARES AND APPLY TO THE REGISTRAR OF COMPANIES FOR THE ISSUE OF CERTIFICATE OF COMMENCEMENT OF BUSINESS. IN THIS CONTEXT, THE FOLLOWING DECLARATIONS HAVE TO BE MADE:

1. A DECLARATION THAT SHARES PAYABLE IN CASH HAVE BEEN SUBSCRIBED FOR AND ALLOTTED UPTO THE MINIMUM SUBSCRIPTION MENTIONED IN THIS PROSPECTUS.

2. A DECLARATION THAT EVERY DIRECTOR HAS PAID IN CASH, THE APPLICATION AND ALLOTMENT MONEY ON HIS SHARES IN THE SAME PROPORTION AS OTHER.

3. A DECLARATION THAT NO MONEY IS PAYABLE OR LIABLE TO BECOME PAYABLE TO THE APPLICANTS BECAUSE OF THE FAILURE OF THE COMPANY TO EITHER APPLY FOR OR OBTAIN PERMISSION TO DEAL IN ITS SECURITIES ON A STOCK EXCHANGE.

4. A STATUTORY DECLARATION THAT THE ABOVE REQUIREMENTS HAVE BEEN COMPLIED WITH. THE DECLARATION CAN BE SIGNED BY A DIRECTOR OR SECRETARY OF THE COMPANY.

A PUBLIC COMPANY RAISING FUNDS, WHICH HAS EARLIER FILED A STATEMENT, IN LIEU OF PROSPECTUS, HAS TO SUBMIT ONLY DOCUMENTS (2) AND (4) LISTED ABOVE.THE REGISTRAR SHALL EXAMINE THESE DOCUMENTS. IF THESE ARE FOUND SATISFACTORY, A ‘CERTIFICATE OF COMMENCEMENT OF BUSINESS’ WILL BE ISSUED…. ….THIS CERTIFICATE IS CONCLUSIVE EVIDENCE THAT THE COMPANY IS ENTITLED TO DO BUSINESS. WITH THE GRANT OF THIS CERTIFICATE THE FORMATION OF A PUBLIC COMPANY IS COMPLETE AND THE COMPANY CAN LEGALLY START DOING BUSINESS.

CERTIFICATE OF COMMENCE BUSINESS

IT IS ISSUED BY THE REGISTRAR TO A PUBLIC COMPANY AFTER IT HAS SUCCESSFULLY RAISED CAPITAL AND COMPLETED THE NECESSARY FORMALITIES. THIS CERTIFICATE ENTITLES THE COMPANY TO START IS BUSINESS OPERATIONS. … IT IS A CONCLUSIVE EVIDENCE THAT THE COMPANY IS ENTITLED TO DO BUSINESS FROM THE DATE MENTIONED IN THE CERTIFICATE. THIS ALSO MARKS THE COMPLETION OF THE PROCESS OF FORMATION OF A PUBLIC COMPANY.

CERTIFICATE OF COMMENCEMENT OF BUSINESS

I hereby certify that ……………………… Ltd. of ……………. Which was incorporated under The Companies Act, 1956, on the ….. Day of ….. 20… and which has this day filed a statutory declaration in the prescribed form that the conditions of Section 149 have been complied with, is entitled to commence business.Given under my hand at………………this day of………….two thousand………………..

Registrar Joint Stock of Companies

Maharashtra

Venture Capital Sources and Documentation Required.

VENTURE CAPITAL IS A GENERIC TERM USED TO REFER TO FINANCING CHARACTERIZED BY HIGH RISK AND POTENTIAL FOR SUBSTANTIAL RETURNS. THE TERM IS MOST OFTEN USED TO REFER TO THE SEED CAPITAL REQUIRED TO LAUNCH NEW COMMERCIAL VENTURES AND TO FINANCE THEIR EARLY-STAGE GROWTH.

VENTURE CAPITAL IS A SOURCE OF LONG-TERM FINANCE TO PROVIDE EQUITY CAPITAL TO VENTURES ADOPTING NEW TECHNOLOGY.

THE MAIN OBJECTIVE OF VENTURE CAPITAL IS TO PROVIDE EQUITY TO VENTURES USING NEW TECHNOLOGY IN ORDER TO COMMERCIALISE THE TECHNOLOGY AND DEVELOP NEW ENTREPRENEURS IN SETTING UP NEW UNITS.

SUCH PROJECTS HOLD IMMENSE PROMISE FOR THE ENTREPRENEURS WHO DO NOT HAVE ANY PAST PERFORMANCE TRACK.

THEREFORE, SOMETIMES THE INVESTMENTS MAY PROVE A LITTLE RISKY. TO OBVIATE THIS RISK AND ATTRACT THE ENTREPRENEURS,

CONCESSIONAL TREATMENT HAS BEEN ACCORDED TO THE INVESTMENT OF THIS NATURE UNDER THE INCOME-TAX ACT.

THE SEBI HAS ISSUED SPECIFIC GUIDELINES FOR THE SETTING UP AND GOVERNANCE OF SUCH FUNDS.

VENTURE CAPITAL IS A HIGH RISK-HIGH RETURN BUSINESS. THE HIGH RISK IS DUE TO THE FACT THAT PROJECTS ARE UNTESTED AND ARE UNDERTAKEN BY NOVICES.

THE TARGETED LONG-TERM RETURNS FROM VENTURE CAPITAL INVESTMENT ARE NATURALLY HIGH.

VENTURE CAPITAL INVESTMENT IS NECESSARILY A LONG TERM INVESTMENT. THE FUNDS ARE USUALLY EXPECTED TO BE TIED UP FOR THREE TO TEN YEARS.

ROLE OF VENTURE CAPITAL

THE FIRST GENERATION ENTREPRENEURS HAVE TO FACE THE SHORTAGE OF EQUITY CAPITAL.

BANKS AND FINANCIAL INSTITUTIONS GENERALLY REQUIRE A SIZEABLE EQUITY CONTRIBUTION FROM THE PROMOTER OF A PROJECT BEFORE THEY SANCTION LOANS FOR IT.

TECHNOCRATS AND SCIENTISTS WHO WANT TO SET BUSINESS VENTURES CANNOT PROVIDE MUCH CAPITAL.

VENTURE CAPITAL FUNDS PROVIDE THE MUCH NEEDED CAPITAL TO THEM.

A HIGH DEGREE OF RISK IS INVOLVED IN VENTURE CAPITAL FINANCING DUE TO THE HIGH PROBABILITY OF LOSS IN NEW VENTURES.

THE VENTURE CAPITAL FUNDS BEAR HIGH RISKS IN THE HOPE OF A HIGH REWARD FROM THE SUCCESS OF THE PROJECT.

THE TECHNOCRAT PROMOTER CONTRIBUTES HIS IDEA AND MAKES THE BUSINESS PLAN WHILE THE VENTURE CAPITAL FUND CONTRIBUTES RISK CAPITAL AND MANAGEMENT SUPPORT.

ONCE THE VENTURE SETTLES DOWN TO PROFITABLE WORKING, BANKS AND RETAIL INVESTORS ARE WILLING TO INVEST IN IT.

AT THIS STAGE, THE VENTURE CAPITAL FUND CAN SELL OUT ITS SHAREHOLDING IN THE ENTERPRISE.

THE MAIN FEATURES OF VENTURE CAPITAL ARE AS FOLLOWS:

INVESTMENTS ARE MADE IN THOSE ENTERPRISES WHICH ARE NEW AND USE NEW TECHNOLOGY TO PROVIDE NEW PRODUCTS, HAVING AN EXPECTATION OF HIGHER PROFITS.

GENERALLY THE INVESTMENTS ARE IN EQUITY INSTRUMENTS THE VENTURE CAPITAL INVESTMENT IS HIGHLY ILLIQUID. IN OTHER

WORDS, IT IS NOT SUBJECT TO REPAYMENT ON DEMAND. THE VENTURE CAPITAL INVESTOR CANNOT INTERFACE IN THE DAY-TO-

DAY MANAGEMENT OF THE ENTERPRISE BUT TO PROTECT AND ENHANCE THE INVESTMENT, HE KEEPS CLOSE CONTACT WITH THE ENTREPRENEUR(S) OR PROMOTER(S).

VENTURE CAPITAL IS AN IMPORTANT SOURCE OF EQUITY FOR START-UP COMPANIES. AN ENTREPRENEUR STARTING A NEW PROJECT WILL INVEST SOME CAPITAL OF HIS OWN AND LOOK FOR SOME OTHER SOURCE TO RAISE REST OF THE CAPITAL REQUIRED FOR THE PROJECT. THAT SOURCE COULD BE A VENTURE CAPITALIST. IT IS THE VENTURE CAPITALIST WHO TAKES THE RISK OF CONTRIBUTING CAPITAL FOR SUCH PROJECTS WITH THE EXPECTATION OF HIGHER RETURNS IN FUTURE. A VENTURE CAPITAL INSTITUTION MAY EVEN INSIST ON HAVING A REPRESENTATIVE APPOINTED TO THE COMPANY’S BOARD OF DIRECTORS TO TAKE CARE OF ITS INTERESTS.VENTURE CAPITAL FUNDING IS A BOOM TO THE FIRST GENERATION ENTREPRENEURS WHO START VENTURES HAVING GREAT POTENTIAL. FOR DECADES, VENTURE CAPITALISTS HAVE NURTURED THE GROWTH OF AMERICAN HIGH TECHNOLOGY AND ENTREPRENEURIAL COMMUNITIES RESULTING IN SIGNIFICANT JOB CREATION, ECONOMIC GROWTH AND INTERNATIONAL COMPETITIVENESS. COMPANIES SUCH AS DIGITAL EQUIPMENT CORPORATION, APPLE, FEDERAL EXPRESS, COMPAQ, SUN MICROSYSTEMS, INTEL, MICROSOFT AND GENETECH ARE FAMOUS EXAMPLES OF COMPANIES THAT RECEIVED VENTURE CAPITAL DURING INITIAL STAGES.

VENTURE CAPITAL FUNDS IN INDIA

IN INDIA, VENTURE CAPITAL FUNDS ARE GOVERNED BY THE SEBI GUIDELINES. A VENTURE CAPITAL FUND MEANS A FUND ESTABLISHED IN THE FORM OF A COMPANY OR TRUST, WHICH RAISES MONEY THROUGH LOANS, ISSUE OF SECURITIES OR UNITS, AND MAKES OR PROCESSES TO MAKE INVESTMENTS IN ACCORDANCE WITH SEBI REGULATIONS. VENTURE CAPITAL FUNDS PROVIDE VENTURE CAPITAL FOR INDUSTRIES LIKE INFOTECH, BIOTECHNOLOGY AND ELECTRONICS.THE INVESTMENT, HOWEVER, IS A LONG-TERM RISK CAPITAL AS SUCH PROJECTS NORMALLY TAKE 3 TO 7 YEARS TO GENERATE SUBSTANTIAL RETURNS. VENTURE CAPITALISTS OFFER ‘MORE THAN MONEY’ TO THE NEW VENTURE AND SEEK TO MONITOR AND EVALUATE THE PROJECT ON A CONTINUOUS BASIS.THE SUPPLIERS OF VENTURE CAPITAL USUALLY FALL IN THESE CATEGORIES:

A. SUBSIDIARIES OF LARGE FINANCIAL CORPORATIONS (INSTITUTIONS) AND BANKS

B. PRIVATE INDEPENDENT SPECIALIZED FIRMSC. PUBLICLY FUNDED SMALL BUSINESS INVESTMENT CORPORATIONS D. SUBSIDIARIES OR DIVISIONS OF LARGE MANUFACTURING CORPORATIONS

IN THE RECENT YEARS, SEVERAL VENTURES CAPITAL FUNDS (VCFS) HAVE COME UP IN INDIA TO PROVIDE VENTURE CAPITAL TO THE YOUNG ENTREPRENEURS. WAY BACK IN 1988-89, THE UTI SET UP A VCF OF RS.20 CRORE IN COLLABORATION WITH THE ICICI FOR FOSTERING INDUSTRIAL DEVELOPMENT. TECHNOLOGY DEVELOPMENT AND INFORMATION COMPANY OF INDIA LTD. (TDICI) ESTABLISHED BY THE UTI LAUNCHED VENTURE CAPITAL UNIT SCHEME (VECAUS-I) TO RAISE RESOURCES FOR THIS FUND.SOME COMMERCIAL BANKS HAVE ALSO FLOATED VCFS. RECENTLY, SOME VCFS IN THE PRIVATE SECTOR HAVE ALSO BEEN FLOATED.

DOCUMENTATION REQUIRED

FOR PROVING FINANCES FOR A NEW VENTURE ANY FINANCIAL INSTITUTION OR INVESTOR NEEDS DETAILED INFORMATION IN THE FORM OF DIFFERENT DOCUMENTS. THE INVESTOR NOT ONLY GOES THROUGH THESE VOLUMINOUS DOCUMENTS, BUT ALSO CROSS CHECKS BY ASKING MORE RELEVANT DETAILS, COMPARING WITH SIMILAR INDUSTRIES, DISCUSSIONS AND DUE DILIGENCE OF THE DOCUMENTS, FIGURE AND ASSUMPTIONS MADE B THE ENTREPRENEUR.THE DOCUMENT GENERALLY NEEDED ARE:

PROJECTS FEASIBILITY STUDY REPORT (PFSR) MARKET RESEARCH STUDY REPORT AND ANALYSIS ENVIRONMENT AND SOCIAL STUDY REPORTS ANALYSIS AND APPRAISAL OF PFSR FROM ECONOMIC, FINANCE,

MARKETING, ORGANSATIONAL ANGLES. SWOT ANALYSIS OF THE PROJECTS A BRIEF OF THE PROJECT OR PROJECT AT A GLANCE. EXECUTIVE SUMMARY

LAND DOCUMENTS PARTNERSHIP OR PROPOSED ORGANISATION NECESSARY GOVERNMENT CLEARANCES FOR THE VENTURE ENVIRONMENTAL CLEARANCES PLUS POINTS OF THE VENTURE PROPOSED NEGATIVE OR LIMITING ISSUES IN THE PROPOSAL

SOURCES OF FINANCE

1. Trade Credit:- Primary source and the most popular Few days credit given by seller/supplier to the buyer.

2. Bank Credit:- Primary Institutional source. Banks offer both secured and unsecured loans to business like cash credit, overdrafts,

loans, purchase & discounting of bills.

3. Non Bank Short Terms Borrowing:- Private loans. Cash advance from customers. Inter – corporate deposits – deposit made by one company with another, for a period upto

six months.

4. Long-Term sources comprising equity capital and long term borrowing. Equity Debenture Public Deposits

Unit III

Entrepreneurial Behaviour

An entrepreneur performs many tasks:- perceives opportunity make business plan organize resources manage & oversee production Undertakes marketing manage financial activities Establish liaison with Govt. officials. Establish liaison and manage various stakeholders. Innovate, bear risks and build an organization Face competition & beat it. All above require sound values and attitudes on the part of the entrepreneur

CORE VALUES AMONG ENTREPRENEURS

i) INNOVATION & CREATIVITY:- Most important value Are guided by these values when they come out with creative ideas, new products,

services, processes etc. to solve specific problems of the society. Discovering new opportunities, working out new combinations and seeing the new idea

through to the end- are all different facets of the uniquely creative and innovative spirit of the entrepreneurs.

Innovativeness can be seen through actions like – Experimenting with new ideas, facing uncertainty, valuing unconventional behaviour, finding new use for existing methods or equipments.

ii) Independence or Self-Reliance:- Entrepreneurs drive great satisfaction in their sense of independence or ownership. A very strong and positive ego drive involved in the action plans of entrepreneurs. Enables them to develop a mission concept which drives them to achieve their goal with

a clear vision. Want to work in an atmosphere of freedom, master of their own destiny. Quality of self-reliance – an imp. asset as it provides courage and confidence to

undertake risks of trying with innovative things. Need to be independent to accomplish the sense of achievement. Dependence on others for decision undermines independence.

iii) Respect for work:- Have great respect for work. Successful entrepreneurs believe that they can achieve anything through hard work. Concentre on work to achieve goals. Nothing deviates them. This value encourages them to pursue right path and they realize the incentives / rewards

linked to degree of hard work.

iv) Quest for outstanding performance or achievements orientation:- This value makes their organs. vibrant and successful. Challenges stimulate and motivate entreps. Set for themselves certain standards of excellence and deal with unexpected obstacles

with confidence. Quest for excellence resolves problems under pressure. Are persistent and work harder when things go wrong. Find another way to solve problems. Leads to systematic planning

Innovation and Entrepreneur;

Peter F. Drucker said – “Entrepreneurs are innovators. Innovation is the specific tool of entrepreneurs, this means by which they exploit change as an opportunity for a different

business or a different service. He always searches for changes, responds to it an exploits it as an opportunity

Introduces something new into the economy – New technique of production, a new source of material or product, opens a new mkt.

— Aggressive in experimentation. — Puts attractive possibilities into practice. — Commonly found in developed countries, as people of such countries also look for

change and progress, extensive research feasible. Conceives / ideas for production of new products/services or improvements in the

quality of production For this he considers the economic viability and technological feasibility. Introduction of different kinds of electronic gadgets – innovation Includes introduction of new products, creation of new markets, application of new

process of production, discovering new and better sources of Raw-Materials, New form / culture of Industrial organization.

Innovation produces satisfaction & profits as he works on inventions – new knowledge. They commercialize the inventions made by inventors, to produce better goods to yield

both satisfaction and profits. They implement inventors ideas as the same product made by many entrepreneurs. Converts technical work of the inventor into economic performance Assumes the role of a pioneer and an industrial leader. Innovational activities raise the productive efficiencies of the economy resulting in

greater output / income. Have to be innovative for survival and better performance, to solve all the problems of

business. All the resources combined by him.

Entrepreneurial Psychotheories ,

Maslow's hierarchy of needs

Maslow's hierarchy of needs is a theory in psychology proposed by Abraham Maslow in his 1943 paper "A Theory of Human Motivation" in Psychological Review. Maslow subsequently extended the idea to include his observations of humans' innate curiosity. His theories parallel many other theories of human developmental psychology, some of which focus on describing the stages of growth in humans. Maslow used the terms Physiological, Safety, Belongingness and Love, Esteem, Self-Actualization and Self-Transcendence needs to describe the pattern that human motivations generally move through.

Maslow studied what he called exemplary people such as Albert Einstein, Jane Addams, Eleanor Roosevelt, and Frederick Douglass rather than mentally ill or neurotic people, writing that "the study of crippled, stunted, immature, and unhealthy specimens can yield only a cripple psychology and a cripple philosophy." Maslow studied the healthiest 1% of the college student population.

Maslow's theory was fully expressed in his 1954 book Motivation and Personality. While the hierarchy remains a very popular framework in sociology research, management training and secondary and higher psychology instruction, it has largely been supplanted by attachment theory in graduate and clinical psychology and psychiatry

David McClelland

Need theory, created by psychologist David McClelland, is a motivational model that attempts to explain how the needs for achievement, power, and affiliation affect the actions of people from a managerial context. This model was developed in the 1960s soon after Maslow's hierarchy of needs in the 1940s. McClelland stated that we all have these three types of motivation regardless of age, sex, race, or culture. The type of motivation that each individual is driven by is changed by life experiences and the opinions of their culture. This need theory is often taught in classes concerning management or organizational behavior.

Need for achievement

People who are achievement-motivated typically prefer to master a task or situation. They prefer working on tasks of moderate difficulty, prefer work in which the results are based on their effort rather than on anything else, and prefer to receive feedback on their work. Achievement based individuals tend to avoid both high risk and low risk situations. Low risk situations are seen as too easy to be valid and the high risk situations are seen as based more upon the luck of the situation rather than the achievements that individual made. This personality type is motivated by accomplishment in the workplace and an employment hierarchy with promotional positions

Need for affiliation

People who have a need for affiliation prefer to spend time creating and maintaining social relationships, enjoy being a part of groups, and have a desire to feel loved and accepted. People in this group tend to adhere to the norms of the culture in that workplace and typically do not change the norms of the workplace for fear of rejection. This person favors collaboration over competition and does not like situations with high risk or high uncertainty.[1] People who have a need for affiliation work well in areas based on social interactions like customer service or client interaction positions.

Need for power

This motivational need stems from a person's desire to influence, teach, or encourage others. People in this category enjoy work and place a high value on discipline. The downside to this motivational type is that group goals can become zero-sum in nature, that is, for one person to win, another must lose. However, this can be positively applied to help accomplish group goals and to help others in the group feel competent about their work. A person motivated by this need enjoys status recognition, winning arguments, competition, and influencing others.[1] With this motivational type comes a need for personal prestige, and a constant need for a better personal status.

Schumpeter and entrepreneurship

The research of entrepreneurship owes much to his contributions. He was probably the first scholar to develop theories in this field. His fundamental theories are often referred to as Mark I

and Mark II. In the first, Schumpeter argued that the innovation and technological change of a nation come from the entrepreneurs, or wild spirits. He coined the word Unternehmergeist, German for entrepreneur-spirit, and asserted that "... the doing of new things or the doing of things that are already being done in a new way"stemmed directly from the efforts of entrepreneurs.

Mark II was developed when Schumpeter was a professor at Harvard. Many social economists and popular authors of the day argued that the net effect of the existence of large businesses was negative on the standard of living for the average person of the day. Contrary to this prevailing opinion, he asserted that the agents that drive innovation and the economy are large companies which have the resources and capital to invest in research and development to create new products and services and to deliver them to individuals less expensively--thus raising their standard of living. In one of his seminal works, "Capitalism, Socialism and Democracy", Schumpeter wrote:

As soon as we go into details and inquire into the individual items in which progress was most conspicuous, the trail leads not to the doors of those firms that work under conditions of comparatively free competition but precisely to the door of the large concerns--which, as in the case of agricultural machinery, also account for much of the progress in the competitive sector--and a shocking suspicion dawns upon us that big business may have had more to do with creating that standard of life than with keeping it down.

Mark I and Mark II arguments are considered complementary today.

Schumpeter and innovation

Schumpeter identified innovation as the critical dimension of economic change. He argued that economic change revolves around innovation, entrepreneurial activities, and market power. He sought to prove that innovation-originated market power could provide better results than the invisible hand and price competition. He argues that technological innovation often creates temporary monopolies, allowing abnormal profits that would soon be competed away by rivals and imitators. He said that these temporary monopolies were necessary to provide the incentive necessary for firms to develop new products and processes.

Kakinada Experiment

Under this experiment, young persons were selected and put through a three-month training programme and motivated to see fresh goals. One of the significant conclusions of the experiment was that the traditional beliefs did not seem to inhibit an entrepreneur and that suitable training can provide the necessary motivation to entrepreneurs. It was the Kakinada Experiment that made people appreciate the need for entrepreneurial training (now popularly known as EDPs) to induce motivation and competence among young prospective entrepreneurs. Based on this realisation, India embarked in 1971 on a massive programme of entrepreneurship development. At present, some 700 all India and state level institutions conduct EDPs. This model is followed in other countries too, such as the ‘Junior Achievement’ programme in USA and ‘Young Enterprises’ in UK.

Social responsibility.

Social responsibility is an ethical theory that an entity, be it an organization or individual, has an obligation to act to benefit society at large. Social responsibility is a duty every individual has to perform so as to maintain a balance between the economy and the ecosystems. A trade-off may

exist between economic development, in the material sense, and the welfare of the society and environment. Social responsibility means sustaining the equilibrium between the two. It pertains not only to business organizations but also to everyone whose any action impacts the environment. This responsibility can be passive, by avoiding engaging in socially harmful acts, or active, by performing activities that directly advance social goals.

Businesses can use ethical decision making to secure their businesses by making decisions that allow for government agencies to minimize their involvement with the corporation. For instance if a company follows the United States Environmental Protection Agency (EPA) guidelines for emissions on dangerous pollutants and even goes an extra step to get involved in the community and address those concerns that the public might have; they would be less likely to have the EPA investigate them for environmental concerns. “A significant element of current thinking about privacy, however, stresses "self-regulation" rather than market or government mechanisms for protecting personal information”. According to some experts, most rules and regulations are formed due to public outcry, which threatens profit maximization and therefore the well-being of the shareholder, and that if there is not outcry there often will be limited regulation.

Critics argue that Corporate social responsibility (CSR) distracts from the fundamental economic role of businesses; others argue that it is nothing more than superficial window-dressing; others argue that it is an attempt to pre-empt the role of governments as a watchdog over powerful corporations though there is no systematic evidence to support these criticisms. A significant number of studies have shown no negative influence on shareholder results from CSR but rather a slightly negative correlation with improved shareholder returns.

Entrepreneurial Development Programmes (EDP):

EDP Their Role, Relevance and Achievements;

Role and relevance of Entrepreneurial Development Programme (EDP) in the process of economic development and growth of a nation is immense. Various EDPs are designed to develop and improve entrepreneurial skills and behavioural adjustment needed to go through the stresses of initial stages. Different programmes are designed for different trades, industries and big projects.

Basically the EDPs are meant to train and develop new entrepreneurs who act as catalytic agents in the process of industrialization and economic growth. It is the entrepreneur who organises and puts to use capital, labour and technology in the best possible manner for the setting up of his enterprise. The entrepreneur with his vision and ability to bear risk can transform the economic scene of the country. They play a vital role in initiating and sustaining the process of economic development of a nation. It is the EDP through which the entrepreneurs learn the required knowledge and skill for running the enterprise successfully which ultimately contribute towards economic progress in the following ways:

i. Creates employment opportunities:

Acute unemployment has been a chronic problem of most of the underdeveloped an developing nations of the world. EDPs help solving the problem of unemployment by creating adequate employment opportunities in setting up of their own small and big industrial unit where the unemployed are absorbed.

EDPs also help the unemployed to opt for se employment by choosing entrepreneurship as a career. In this way EDPs help the entrepreneur to get an opportunity to lead on independent and respectable life in the society and at the same time enable others to get gainful employment. Various programmes, schemes like Prim Minister's Rozgar Yojana, NREP (National Rural Employment Programme) and IR (Integrated Rural Development Programme) etc. have been initiated by Government of In to eliminate poverty and solve the problem of unemployment.

ii. Helps in achieving Balanced Regional Development:

Successful EDPs assist in accelerating the pace of industrialisation in the backward areas and helps in reducing the concentration of economic power in the hands of a individual. Government encourages to set up industries in the backward areas to remove wide gap of income and wealth between the rich and poor. The various concessions subsidies offered by the State and Central Governments prompted the entrepreneurs to up their own small and medium industrial units in the rural and backward areas. EDPs in setting up more and more industrial units in the backward areas lead to the develop of rural sector which helps in achieving balanced regional development.

iii. Prevents Industrial Slums:

The towns and cities are highly congested and overcrowding due to the growth of industrial slums which results in overburdening of civic amenities and a lot of problems including adverse impact on the health of the people. EDPs help in solving the above problems by preventing the growth of industrial slums through dispersal of industrial units in different parts of the country including backward and rural areas. EDPs help entrepreneurs to know about the various schemes, incentives, subsides and infrastructural requirements for setting  their enterprises, particularly in backward and rural areas. This checks migration of rural people to urban sector and thus controls the growth of industrial slums.

iv.Use of Local Resources:

Plenty of locally available resources remain unutilized due to absence of initiative and lack of adequate knowledge by the entrepreneurs. Proper use of these resources will help to starve out a healthy base for rapid industrialisation and sound economic growth. EDPs can help in the proper use of locally available resources by providing proper training, guidance and education to the potential entrepreneurs.

v. Easing social tension:

EDPs help in channelizing on right lines the talent and energies of unemployed youth »1io feel frustrated after completing their education without a job or source of livelihood. Unemployment and frustration amongst the young and educated people lead to social unrest Lid tension. EDPs help in diverting the talent of the youth towards self-employment careers by establishing their own enterprises and thus creating employment opportunities for the unemployed. In this way EDPs are able to defuse the social tension and unrest among the youth.

vi. Economic Independence:

The entrepreneurs through EDPs are able to achieve economic independence of a country by producing a wide variety of better quality goods and services at competitive prices. They also through export promotion and import substitution able to earn and save urge amount of foreign exchange which is essential for the growth and development of any economy.

vii. Improves the standard of living and per-capita income:

EDPs provide the necessary support to entrepreneurs by educating them about the test innovation and techniques of production to produce a large variety of quality goods id services at competitive prices. EDPs also help in establishing more enterprises which ad to provide more employment opportunities and help in increasing the earning of the people. It will result in increase in per-capita income and thus helps in the improvement of standard of living of the people.

viii. Helps in the overall development of the nation:

Entrepreneur acts as a catalyst which helps in enhancing the various activities involved a business enterprise. In recent years EDP package, have become a vital strategy for harnessing the vast untapped human skills, and put them into industrial development. It results in the emergence of entrepreneurial opportunities in various fields which leads to all-around development in a country.