Origin of a Business

Scene 1 Angels:

Angel Investors:
An Entrepreneur comes up with an idea but doesnt have enough money to start the company, he will convince two of his friends to invest in his venture. These two friends who invested money are called Angel investors. They are investing and not giving loan. They are termed Angels because they are investing pre revenue stage and are taking a blind bet on the entrepreneur.

Seed Fund:
The funds entrepreneur raises along with his two friends is called seed fund.

Share Capital:
Once the seed fund reaches the company's band account it is called initial Share Capital of the company.

Face Value of the share:
It is the Share Capital divided by the number of share holders.

Authorized Shares:
The total number of shares that the company is divided into are the authorized shares of the company.

Issued Shares:
The total number of initial authorized shares are divided in between the entrepreneur, the angel investors and some of the shares are retained in the name of the company. The ones distributed among the entrepreneur and the angel investors are called issued shares and they can sell them if they want to.

Venture Capitalist (VC):
After the company starts making revenue and after proving worthy in the initial stages to expand the business they can decide to expand the business by introducing a new investor by offering a percentage of shares who becomes a Venture Capitalist and the money that the company gets at this stage is called Series A funding.


CAPEX:
Now that the company has enough evaluation done and has enough backing, they approach the bank for further funding lets say the company is moving to some other cities such expenditure is know as 'Capital Expenditure' or CAPEX.

Series B funding:
The company can approach another VC and raise another round of VC funding, this is known as Series B funding.

Debt:
Company can approach a bank and ask for a loan this is known as Debt.

The Private Equity:
At this stage the company is well worth it and looking for expanding in other companies. They cannot approach a typical VC for funds as the requirement would be pretty high. They approach private equity. PE investors are highly qualified and have an excellent professional background.
A typical PE will never invest in a new or budding company. They even place their own people on board to ensure the company steers in the right direction.

The IPO:
After 5 years of PE funding the company is doing pretty well and successfully built the portfolio plus they have presence in all the cities in the country, revenue is good and investors are happy, now the company can for an IPO(Initial Public Offering).

1. Before understanding why companies go public, it is important to understand the origin of business
2. The people who invest in your business in the pre-revenue stage are called Angel Investors
3. Angel investors take maximum risk. They take in as much risk as the promoter
4. The money that angels give to start the business is called the seed fund
5. Angel’s invest relatively a small amount of capital
6. Valuation of a company simply signifies how much the company is valued at. When one values the company they consider the company’s assets and liabilities
7. A face value is simply a denominator to indicate how much one share is originally worth
8. Authorized shares of the company is the total number of shares that are available with the company
9.  The shares distributed from the authorized shares are called the issued shares. Issued shares are always a subset of authorized shares.
10. The shareholding pattern of a company tells us who owns how much stake in the company
11. Venture Capitalists invest at an early stage in business; they do not take as much risk as Angel investors. The quantum of investments by a VC is usually somewhere in between an angel and private equity investment
12. The money the company spends on business expansion is called capital expenditure or capex
13. Series A, B, andC etc are all funding that the company seeks as they start evolving. Usually higher the series, higher is the investment required.
14. Beyond a certain size, VCs cannot invest, and hence the company seeking investments will have to approach Private Equity firms
15. PE firms invest large sums of money and they usually invest at a slightly more mature stage of the business
16. In terms of risk, PE’s have a lower risk appetite as compared to VC or angels
17. Typical PE investors would like to deploy their own people on the board of the investee company to ensure business moves in the right direction
18. The valuation of the company increases as and when the business , revenues and profitability increases
19. An IPO is a process by means of which a company can raise fund. The funds raised can be for any valid reason – for CAPEX, restructuring debt, rewarding shareholders etc