Private equity | Venture capitalist
What do company IPOs bring?
What do lekhar company IPOs bring? Understanding further topics will become much easier if you correctly understand the answer to this question. In this chapter we go into the bar of some new financial concepts.
2.Start of business
Before we answer the question of what an IPO IPO brings, we have to know and understand some of our fundamental rights (concepts), like how any company starts. Let's understand this through a story, and divide this story into a few different scenes, so that the business i.e. business and funding i.e. how the system of raising capital works, how it is formed and grows, all this is understood correctly.
3.Scene 1-Angels
Suppose there is a businessman who has a very good business idea. To sell organic cotton faceless T-shirts. The designs of these T-shirts will be different, their prices will also be attractive to customers, and the best quality cotton will be used in their production. That entrepreneur is sure that this business will be successful and he is also very excited to turn this idea into a business.
But before starting a business, are you in need of rupees and will they come from said? And suppose he does not even have experience running a business. It is very difficult to find a person who invested money in his idea. So what will he do? He will seek help from his family, relatives or friends. He can also apply for a loan in the bank, but this will not be a good option at this stage.
Then he assumes that he puts his deposit and also convinces his two friends to invest money in the business. These two friends are investing money even before they start earning in business and are betting on the entrepreneur in a way. Both of them will be called angel investors. Here you should note that the money that angel investors invest is not debt but investment in business.
Now let's say that the promoter ( who has a business idea) and Angel events together added Rs 5 crore capital. This capital is called the seed fund. These seed funds are not kept in the bank account of the promoter but in the bank account of the company. As soon as these seed funds are deposited in the bank account of the company, this money is known as the initial share capital (initial share capital) of the company.
In exchange for this seed investment, all three shareholders ( promoters and 2 angel investors) are issued share certificates of the company indicating that all three are the owners of the company.
Now the company has Rs 5 crores, this is the property (property) of the company. Therefore, the value of the company is also Rs 5 crore. This is called the valuation of the compa
Share issue is very easy to do. The Company assumes that the price of each share is Rs 10 and because there is a share capital of Rs 5 crore, then there will be 50 lakh shares and the share price will be Rs 10. Here, the price of the share which is Rs 10 is called the face value of its share (face value). The face value is not necessarily Rs 10, it can be more or less. If the face value is Rs 20, the number of shares will be 25 lakhs.
Up to 50 million shares ISU, her company adds Kathryn shares (authorized shares). Some of these shares are divided into all three promoters and 2 angel investors, and some shares are held with the company keeping in mind the future.
Now let's say the promoter got 40 percent shares, and both angel investors 5-5 percent. The company held 50 percent shares. Shares that premotor and angel investors received are called ishood shares (issued shares).
Keep in mind that the remaining 50 percent share is with the company. These are shares, loans are allocated i.e. not given to anyone.
Now the promoter has the company, and also a great seed fund. The promoter starts the business, but he moves forward a little bit and opens a small manufacturing unit and only a retail store to manufacture and sell his product.
4.Scene 2 - venture capitalist
The promoter's hard work pays off and by the end of the second year the company's expenses and income are equalized. When the company's expenses and income are equal, it says kapani is breaking even. The promoter also now has the experience of running the company and more confidence than ever. Now the promoter wants to spread the business a little. He wants to open another manufacturing unit and some new retail stores. After making a business plan, he realizes that the entire work will take a capital of Rs 7 crore.
The condition of the Promoter is now quite different from before. There is constant earnings in the business. So the promoter can go to the investors who invest money in the new business. Let's say, he spoke to a similar investor who agreed to give him Rs 14 crore in exchange for a 7% stake in the company.
Investments that invest money in the following years or phases of the taxpayer are called venture capitalists (VCs). The money that the company mixes in this phase is called Series and funding ( Series A funding).
When the company allocates 14% of the shares VC out of thethridge capital, the share holding will be patern Absa…
S. No. Name of shareholder No. of shares holding (in%)
1 promoter. 2,000,000. 40
2 Angel. 1 250,000 5
3 Angel. 2 250,000. 5
4 venture capitalist. 700,000. 14
Total 3,200,000. 64
Remember that the remaining 36 percent shares are still with the company and have not been issued.
Now a new thing is happening after the VC money comes in Karobar. VC has given its 14 percent Hindi or 7 crore Decker for the share, a valuation of 50 crore to the entire company. This is 5 times more than the initial valuation of 10 crores. A good business plan and good income benefit businesses like this. The business only gets bigger this way. As the valuation of the company increases, the investment of the initial investors also has an impact, which you can understand from the table below.
S. No. Name of shareholder initial shareholding initial valuation after 2 years shareholding valuation after 2 years asset creation
1 promoter 40% 2 crore 40% 20 crore 10 times
2 Angel 1 5% 25 million 5% 2.5 million 10 times
3 Angel 2 5% 25 million 5% 2.5 million 10 times
4 venture capitalists 0% NA 14% 07 crores na
Total 50% 2.5 crore 64% 32 crore
Proceed with the story. The promoter now has the extra capital he needed to increase the business. The company got a new manufacturing unit and some retail outlets. Everything is going great. The popularity of the product is increasing which is generating more income. The management team is getting better thereby improving the functioning and increasing the profits of the company.
5.Scene 3: The Banker
Now 3 more years have passed while the company works . Now the company is touching new dimensions of success. At this stage, the company decides to start retail stores in 3 more cities. And obviously, for this, the company will also have to increase production capacity and recruit new people. Such expenses, which the company makes to grow and improve the business, are called capital expenditures or capex.
The management feels that Rs 40 crore will be needed for this work. So the question arises, How will the company meet this need?
Some options for adding this capital to the company are
1. With the profits that the company has made over the years, capex needs can be met. Such is called raising money from internal accusations or internal Psalms.
2. Can go to the patriarch and MAGA again the patriarch fundraising. For this, the VC will have to share. This is called Series B funding.
3. The company can go to a bank and ask for a loan. Since the company is doing good business, it will not be difficult for the company to get a loan.
The company took all three of the above paths - 15 crores from internal sources, 5 percent equity in Series B to 10 crores and 15 crores from a bank.
Note that getting 5 crore instead of 10 percent equity, the company's valuation is showing 200 crore. Maybe it's a bit too much, but we're right here for the story.
Now the company's shareholding and valuation will look like this…
S. No. Name of shareholder No. of shares holding (in%) valuation (in CR)
1 promoter. 2,000,000. 40. 80
2 Angel. 1 250,000. 5. 10
3 Angel. 2 250,000. 5. 10
4 VC series a. 700,000. 14. 28
5 VC Series B 250,000 5 10
You will see that the company has not allocated 31 percent shares to any shareholder right now. The price of these shares is currently 62 crores. The capital of the company grows in this way, especially when an entrepreneur has a good business idea and a good management team.
Such examples you will see in Infosys, Page Industries, Eicher Motors and internationally in Google, Facebook, Tweeter and WhatsApp etc.
6.Scene 4-private equity
A few years pass and the company reaches new heights of success. With success, this 8-year-old 200-crore company is filled with enthusiasm. The company now wants to spread its business throughout the country. The company now wants to build its own factory and sell fashion accessories, designer cosmetics and perfumes.
For this new work, the company seems to need a capex of 60 crores. The company does not want to take a loan, because paying interest will reduce its profits.
On this occasion, the principal of the College, Dr. K. K. VC funding has only been able to get a few crores. Therefore, now the company will have to go to a private equity investor.
Private equity investors are very knowledgeable. They have a long wide experience. They invest large sums of money and also put their people on the board of the company, so that the company moves towards a certain direction. Let's say they take 15 percent part and give Rs 60 crore for that. In this way, the company's valuation will now reach 400 crores. Now let's look at the company's shareholding and valuation…
S. No. Name of shareholder No. of shares holding (in%) valuation (in CR)
1 promoter. 2,000,000. 40. 160
2 Angel. 1 250,000. 5. 20
3 Angel. 2 250,000. 5 20
4 VC one. 700,000. 14. 56
5 VC B 250,000 5 20
6 PE Series C 7,50,000 15 60
Total 4,200,000 84 336
Remember that the company has still kept 16 percent of the share that has not been allocated to anyone. Its price is now 64 crores.
Once a payee invests, he pays for Kapex's big concern. Pay never takes money in the shuruti round of business Balki vosi companies, who have been working for a few years and who are getting income. Taking money from pay and putting that money into Kapex is a long time job and it takes a few years.
7.Scene 5-IPO
After 5 years of pay investment, the company's carob cafe has increased. He has added many products and is present in many big cities of the country. Earnings are getting good, profits are stable and investors are happy. But the Promoter is not satisfied with this. The promoter now wants to spread the business abroad as well. He wants to have at least two outlets or shops in all the big cities of the world.
This means that now the company will have to research the markets of different countries to see what the people there like. The company will have to hire new people and also increase its production. Also, money will have to be spent on real estate all over the world.
This time, the capex requirement is quite large and the management estimates that it needs Rs 200 crore. The paths that the company faces are these-
1.Internal source
2.Series D (D)from pay funds
3.More loans from the bank
4.Issuing bonds ( another method of debt)
5.Issue of shares through IPO
6.A mix of all the paths above
Suppose the company decided to raise part of capex from internal sources and the rest from the IPO. When the company brings an IPO, it sells its shares to the general public. The chunky company is offering its share publik for the first time in the middle, for what is called an initial public offering or IP. Now some questions abound to arise
1.Why did the company decide to bring an IPO and why does the company take this path?
2.Why did the company not choose the path of IPO at the time of the first series A, B and C?
3.What will happen to existing shareholders after the IPO arrives?
4.What does the general public see before investing money in an IPO?
5.How does this whole IPO process proceed?
6.Which financial intermediaries work in the IPO market?
7.When the company brings a public issue, what happens?
In the next chapter, we will answer these questions and also tell a few more things related to the IPO market. Hopefully, you have understood the journey before the company's IPO.
