Angle investors are the high networth individuals who invest in the early stage companies or start ups. Angle investors are high rich people who invest in the equity of the company. They are the experts in some area because of their experience so before their investment in the startups they will study about the chance of success of the business. Whether startup can get good customer and can attract the market or get the return on investment.after the proper study angle investors will invest the funds in the equity share of the business. Angle investors are the experts in some areas so they will give the good suggestion to the management of the company to make good decisions. Angle investors will make the investment for the long term, wait until the success of the business. When comapany get good return they will sell their part of share and get good return. For the startups these investors will give fund along with good suggestion for the decision making in the business.
Retained earnings is the amount that comapany keeps in itself after paying dividends which is from the profits earned by the comapny. When comapany makes good profit I will give dividend after that if the fund left it will convert it in to the retained earnings which the company can use such fund in the future companies needs. If comapany is making profit from many years it will have good retained earnings which company can use such funds for capitalisation, purchase of new assets, purchasing new company or merging with other companies. When comapany has good amount of retained earnings it can use such funds for future uncertainty in the business.if business one day face the losses the company can use this fund for the business. If company face the funds problem for any purchase this fund can be utilised. As innovation is important for any kind of business from the profit business can spend retained earnings on the innovation or researches. This fund will help the company in uncertainty times.
Joint venture is the entity created by two or more companies for the particular purpose, the companies will put the fund in the beginning and in the future days they will share the profits of the entity accordingly. The joint venture may happen one comapany may good in technology so it will help the another company. By adopting joint venture one comapany from other country can produce with the company and enter in to the market. The comapany can increase its market share by joining with other company by joint venture. Joint venture can help when new innovative products are offering in the market where high technology is needed where companies can share their technology. Joint venture will reduce cost by economies of scale and increase the financial position of the entity. By this new technology can be brought in to business and can attract new customers to the business.joint venture will help the companies to face the tough competition in the market.when both companies come together for the particular purpose that can share their infrastructure where it will help in reduce the cost.
Invesntory is the total of raw materials , work in progress and finished goods which company holds for sales in the future. Company will purchase the raw material and process on it and convert it in to finished goods and sell it in the market. But it requires time it lead to idle of resources. So comapany need to make the proper inventory management. Need to adopt the EOQ techniques so the ordering cost and the holding cost of the materials and damage on the material can be reduced. By adopting EOQ comapany can make order of how much required to company for a time. By adopting ABC analysis company can devide it’s rawmaterials in to 3 category according to that order can be placed and most important in production to campany can be given more importance. So the wastage of material can be reduced. So by following inventory management properly the cost of inventory and idle of resources can be reduced.
The business requires funds to purchase and sell the products, the fund which is required to run the day to day business is called working capital. If current liabilities removed from current assets then we can get the working capital. Total current assets of the business is called gross working capital, when current liabilities removed from current assets it is called as net working capital. So business need to maintain the liquidity position in the business to maintain the working capital. To manage working capital business need to manage its cash, Inventory, Receivables and payables properly. When inventory was purchased need to be sold as early as possible so the idle of fund can be reduced. Business need to collect the receivable in time. And should pay payables in time. Should have more current assets than the current liabilities.
When private company wants raise fund from public will go for the initial public offering. In IPO the company need get minimum subscription of shares from the public. If the IPO was not able raise minimum subscription then the ipo will fail. So to assure that the underwriter will guarantee the company to subscribe for the shares if the shares were not purchased by the public. Underwriter will come with agreement with the company that if ipo under subscribed then underwriter will purchase such shares. Underwriter will help the company to fix the price for the selling of share in the ipo. Even helps in meeting requirement for the ipo.
Investments are made on the perspective to get the gain by over the period of time. Aim of investment is to increase in wealth by keeping it safe. There are many ways one can invest his wealth but need to calculate it’s risk and return. The investment must have the qualities of keeping the capital safe along with liquidity. Because when the need arise one can utilise it.
Qualities of good investments
Capital safety : The investment should have the quality of capital safety. The investment should not lose its value over the period of time. It should grow over the period of time.
Liquidity: The investors must in the position to use the investment when the need arises. The investment made by him should be liquid where it can be possible to convert in to cash easily.
Capital growth: The investment should grow over the period of time as the investors can get good return for their long term holdings.
Must consider time value of money : The return which the investor get from the investment should consider the time value of money.
Profitable: The investment need to give good profit in return to the investors for making the investment.
Securatization is the process of convertion of debts in to the marketable securities. As banks gives loans for many purposes, by giving loans the cash will get outflowed but inflow will be after the some years. So banks may get liquidity problems,may not able to give loans to other people. To overcome from this the securatization will help the banks. as loans are given by banks on mortgage the banks will sell such receivable to Special purpose vehicle and get the cash from SPV. Special purpose vehicle will appoint credit rating agency to rate the different loans. The SPV will convert such debts in to marketable securities, where the investors can invest in such securities. Based the rating given by the credit rating agency the investors will invest in the securities. The investors will get the interest for their investment.
- Helps banks to maintain liquidity
- Helps banks to give new loans where bank can generate more interest
- Investors can invest according to the credit rating and get returns
Venture capital is the form of Financing where venture capitalists will invest funds in startups and starting stage companies which has potential to do good in future.Venture capitalists will invest in equity share of the companies.where it will be high right risk but with the analysis of them they will invest and analyse the good return in future. Venture capitalists will invest in well diversified and new product company which is producing new product which may have demand in the market. Venture capitalists will advice the management to take good decisions to make company successful.
Ways in which venture capitalists finance the company
- Venture capitalists may purchase equity share of company
- Investing in debentures of the company
- Giving the loan to the company
Stages of venture capital Financing
Seed stage: Here company just has the plan or the idea of the product but requires fund to bring that idea in to actual product and make the market research, demand forecasting.
Startup stage: Here company need fund to make the advertisement of the product, where the market research and demand analysis has already completed.
First stage: Here Business goes for actual production of products and bring it in to the market. For production need the fund.
Second stage: Here business go for the more and more production of products and bring new products for the market.
Bridge stage: Here Business already matured and ready for merger, aquision and go for ipo. So need fund for merger and ipo.
Exit strategy for venture capitalists
- Initial Public Offering
- Merging with other companies
- Acquired by other company
- Purchased by other venture capitalists
- purchased by company owner
Debenture is the loan or debt instrument which is issued by Government and Corporates to raise the fund. Debenture are issued on fixed interest rate. Their value is based on credit rating. Based on credit rating people will purchase the debentures. Debenture holders are the creditors to the company and they get interest on their investment in the company.
Types of debentures
Secured debentures: secured debentures are backed by the assets security. They are like mortgage loan. For such debenture particular assets will be act as security.
Unsecured debenture: Unsecured debenture are not secured by any assets they are purchased based on companies credit worthiness and reputation.
Convertible debentures: Convertible debentures are the Debentures which allow to convert to Equity shar. Where debentures holder will become equity share holder.
Non Convertible debentures : Non Convertible debentures are the Debentures where it is not possible to convert it into equity share.
Redeemable debentures : in this types of debentures the time of repayment of loan is mentioned and when investor can get back his invested money is mentioned.
Irredeemable debentures : The debentures will not have time of repayment. These are long term debentures. These are repayable at the time of liquidation.