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Unit 4

Idea generation techniques aim to foster innovation for new products or business models. Some common techniques discussed in the document include brainstorming, mind mapping, roleplaying, questioning assumptions, and reverse thinking. The document also provides detailed descriptions of 18 specific idea generation techniques such as SCAMPER, morphological analysis, forced relationships, visualization, and collaboration. The goal of these techniques is to help individuals and groups come up with novel ideas by altering their perspectives or building on existing ideas in new ways.

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0% found this document useful (0 votes)
21 views31 pages

Unit 4

Idea generation techniques aim to foster innovation for new products or business models. Some common techniques discussed in the document include brainstorming, mind mapping, roleplaying, questioning assumptions, and reverse thinking. The document also provides detailed descriptions of 18 specific idea generation techniques such as SCAMPER, morphological analysis, forced relationships, visualization, and collaboration. The goal of these techniques is to help individuals and groups come up with novel ideas by altering their perspectives or building on existing ideas in new ways.

Uploaded by

mishra.sonalig
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Idea Generation: Sources and Methods

What is Idea Generation?


Idea Generation is the beginning of the process of innovation specifically for
new products, innovative solutions, or business models that are innovative, There
are a variety of idea generation techniques to help create new
ideas. Brainstorming is an example that is well-known, as are mind mapping,
role-playing, and reverse thinking. We’ll discuss each of these techniques more
thoroughly later in the article.

The secret to Idea Generation is that there is no secret! A successful Idea


Generation process is one that leads to questioning assumptions and opening
existing methods to new ideas. Businesses find idea generation activities that
result in success, and each takes a different approach, but we believe there are
some common threads among businesses that turn potential ideas into great
ideas.
18 KILLER IDEA GENERATION TECHNIQUES

1. SCAMPER

SCAMPER is an idea generation technique that utilizes action verbs as stimuli. It is a well-
known kind of checklist developed by Bob Eberie that assists the person in coming up with
ideas either for modifications that can be made on an existing product or for making a new
product. SCAMPER is an acronym with each letter standing for an action verb which in turn
stands for a prompt for creative ideas.

S – Substitute

C – Combine

A – Adapt

M – Modify

P – Put to another use

E – Eliminate

R – Reverse

2. Brainstorming

This process involves engendering a huge number of solutions for a specific problem (idea)
with emphasis being on the number of ideas. In the course of brainstorming, there is no
assessment of ideas. So, people can speak out their ideas freely without fear of criticism.
Even bizarre/strange ideas are accepted with open hands. In fact, the crazier the idea, the
better. Taming down is easier than thinking up.
Frequently, ideas are blended to create one good idea as indicated by the slogan “1+1=3.”
Brainstorming can be done both individually and in groups. The typical brainstorming group
comprises six to ten people.

3. Mindmapping

Mindmapping is a graphical technique for imagining connections between various pieces of


information or ideas. Each fact or idea is written down and then connected by curves or lines
to its minor or major (previous or following) fact or idea, thus building a web of
relationships. It was Tony Buzan, a UK researcher, who developed the technique “mind
mapping” discussed in his book ‘Use your Head’ (1972). Mind mapping is utilized in
brainstorming, project planning, problem solving and note taking. As is the case with other
mapping methods, the intention behind brain mapping too is to capture attention and to gain
and frame information to enable sharing of concepts and ideas.

To get started with mindmapping, the participant just has to write a key phrase or word in the
middle of the page. Then, he must write anything else that comes to his mind on the very
same page. After that, he must try to make connections as mentioned in the previous
paragraph.

4. Synectics

Synectics is a creative idea generation and problem solving technique that arouses thought
processes that the subject may not be aware of. It is a manner of approaching problem-
solving and creativity in a rational manner. The credit for coming up with the technique
which had its beginning in the Arthur D. Little Invention Design Unit, goes to William J.J.
Gordon and George M. Prince.

The Synectics study endeavored to investigate the creative process while it is in progress.
According to J.J Gordon, three key assumptions are associated with Synectics research.

It is possible to describe and teach the creative process

Invention processes in sciences and the arts are analogous and triggered by the very same
“psychic” processes

Group and individual creativity are analogous

5. Storyboarding

Storyboarding has to do with developing a visual story to explain or explore. Storyboards can
help creative people represent information they gained during research. Pictures, quotes from
the user, and other pertinent information are fixed on cork board, or any comparable surface,
to stand for a scenario and to assist with comprehending the relationships between various
ideas.

6. Roleplaying
In the role playing technique, each participant can take on a personality or role different from
his own. As the technique is fun, it can help people reduce their inhibitions and come out
with unexpected ideas.

7. Attribute listing

Attribute listing is an analytical approach to recognize new forms of a system or product by


identifying/recognizing areas of improvement. To figure out how to enhance a particular
product, it is broken into parts, physical features of each component are noted, and all
functions of each component are explained and studied to see whether any change or
recombination would damage or improve the product.

8. Visualization and visual prompts

Visualization is about thinking of challenges visually so as to better comprehend the issue. It


is a process of incubation and illumination where the participant takes a break from the
problem at hand and concentrates on something wholly different while his mind
subconsciously continues to work on the idea. This grows into a phase of illumination where
the participant suddenly gets a diversity of solutions and he rapidly writes them down,
thereby creating fresh parallel lines of thought.

Picture prompts help a lot when it comes to enabling one’s brain to establish connections.
These prompts can help to surface emotions, feelings and intuitions. This makes them
particularly useful for brainstorming solutions to innovative challenges involving people, and
issues with a deep psychological or emotional root cause.

9. Morphological analysis

Morphological analysis has to do with recognizing the structural aspects of a problem and
studying the relationships among them. For example: Imagine the problem is transporting an
object from one place to another by way of a powered vehicle. The significant dimensions
are: the kind of vehicle (cart, sling, bed, chair); the power source (internal-combustion
engine, pressed air, electric motor); and the medium (air, hard surface, rails, rollers, oil,
water).

10. Forced relationships

It is an easy technique involving the joining of totally different ideas to come up with a fresh
idea. Though the solution may not be strictly unique, it frequently results in an assortment of
combinations that are often useful. A lot of products we see today are the output of forced
relationships (such as a digital watch that also has a calculator, musical birthday cards and
Swiss army knife).

10. Daydreaming

Though mostly not met with approval, daydreaming is truly one of the most fundamental
ways to trigger great ideas. The word “daydream” itself involuntarily triggers an uninhibited
and playful thought process, incorporating the participant’s creativity and resourcefulness to
play around with the present problem. It enables a person to establish an emotional
connection with the problem, which is beneficial in terms of coming up with a wonderful
idea.

11. Reverse thinking

As the term ‘reverse thinking’ itself suggests, instead of adopting the logical, normal manner
of looking at a challenge, you reverse it and think about opposite ideas. For example: ‘how
can I double my fan base?’ can change into ‘how do I make sure I have no fans at all?’ You
may notice that the majority of participants would find it easier to produce ideas for the
‘negative challenge’ simply because it is much more fun.

12. Questioning assumptions

The majority of industries have an orthodoxy – unspoken but deeply-held beliefs that
everyone stands by for getting things done. Sadly, they fail to realize that by questioning
assumptions at every step of service or product development, they can actually enable the
birth of fresh possibilities and ideas.

14. Accidental genius

Accidental genius is a relatively new technique that utilizes writing to trigger the best ideas,
content and insight.

15. Brainwriting

Brainwriting is easy. Instead of asking the participants to shout out ideas, they are told to pen
down their ideas pertaining to a specific problem or question on sheets of paper, for a small
number of minutes. After that, each participant can pass their ideas over to someone else.
This someone else reads the ideas on the paper and adds some new ones.

16. Wishing

This technique can be begun by asking for the unattainable and then brainstorming ideas to
make it or at least an approximation of it, a reality. Start by making the wishes tangible.
There should be collaboration among the members of the team to produce 20 to 30 wishes
pertaining to your business. Everyone’s imagination should be encouraged to run wild – the
more bizarre the idea, the better. There should be no restrictions on thinking.

17. Socializing

If employees only hang around with colleagues and friends, they could find themselves in a
thinking rut. Let them utilize all those LinkedIn connections to begin some fantastic
conversations. Refreshing perspectives will assist with bringing out new thinking and
probably, one or two lightning bolts. Socializing in the context of ideation can also be about
talking to others on topics that have nothing whatsoever to do with the present problem.

18. Collaboration
As the term indicates, collaboration is about two or more people joining hands in working for
a common goal. Designers frequently work in groups and engage in collaborative creation in
the course of the whole creative process.

Identification and Classification of ideas

The term ‘opportunity’ also covers a product or project. Hence, the identification of an
opportunity or a product or project is identical and, therefore, all these three terms are used as
synonyms. The Government of India’s “Look East Policy” through North East is an example
of ‘opportunity’ to do business in items like tea, handicrafts, herbals, turmeric, etc.

Opportunity identification and selection are like comer stones of business enterprise. Better
the former, better is the latter. In a sense, identification and selection of a suitable business
opportunity serves as the trite saying ‘well begun is half done.’ But, it is like better said than
done. Why? Because if we ask any intending entrepreneur what project or product he/she will
select and start as an enterprise, the obvious answer he/she would give is one that having a
good market and is profitable. But the question is how without knowing the product could
one know its market?

To mention the important ones, the entrepreneurs selected their products or projects
based on:

1. Their own or partners’ past experience in that business line;


2. The Government’s promotional schemes and facilities offered to run some specific
business enterprises;
3. The high profitability of products;
4. Which indicate increasing demand for them in the market?
5. The availability of inputs like raw materials, labour, etc. at cheaper rates;
6. The expansion or diversification plans of their own or any other ongoing business
known to them;
7. The products reserved for small-scale units or certain locations.

Now, having gained some idea on how the existing entrepreneurs selected products/projects,
the intending entrepreneur can find a way out of the tangle of which
opportunity/product/project to select to finally pursue as one’s business enterprise.

One of the ways employed by most of the intending entrepreneurs to select a suitable
product/project is to firstly generate ideas about a few products/ projects. Accordingly, what
follows next is a discussion idea generation about products.

Individual Creativity: Roles and Process


Individual Creativity

As old products are replaced by new, creativity is the identifying factor changing the way we
do things? Creativity drives entrepreneurship at all levels anticipating profits through early
product innovation. Whether radical or incremental innovation, creative dynamism at the
individual level has a cumulative effect on the innovation process.

1.The Preparation Step of the Creative Process Model

During the preparation step of the creative process model, an individual becomes curious
after encountering a problem. Examples of problems can include an artistic challenge or an
assignment to write a paper. During this stage, she may perform research, creates goals,
organize thoughts and brainstorm as different ideas formulate. For example, a marketing
professional may prepare for a marketing campaign by conducting market research and
formulating different advertisement ideas.

2.The Incubation Step of the Creative Process Model

While the individual begins to process her ideas, he begins to synthesize them using his
imagination and begins to construct a creation. Gabora states that during this step, the
individual does not actively try a find a solution, but continues to mull over the idea in the
back of his head.

3.The Illumination Step of the Creative Process Model


As ideas begin to mature, the individual has an epiphany regarding how to piece her thoughts
together in a manner that makes sense. The moment of illumination can happen
unexpectedly. For example, an individual with the task of putting together an office party
may have an idea for a theme while driving home from work.

4.The Evaluation Step of the Creative Process Model

After a solution reveals itself in an epiphany, the individual then evaluates whether the
insight is worth the pursuit. He may make changes to his solution so it is clearer. He may
consult with peers or supervisors regarding his insights during this step before pursuing it
further. If he works with clients, he may seek a client’s input and approval before moving on
to the next step.

5.The Implementation Step of the Creative Process Model

The implementation of an idea or solution in the creative process model is when an individual
begins the process of transforming her thoughts into a final product. For example, during this
step, a painter may begin outlining shapes on a canvas with charcoal before applying oil
paints to the medium. According to Gabora, an individual may begin this step more than once
in order to reach the desired outcome.

Opportunity Assessment

Today’s brands are under relentless pressure to stay relevant in an increasingly crowded and
competitive market place. In order to be successful, brands need to understand how to
connect new products or services with the life of the consumer. By understanding the market
and maintaining a consistent awareness of challenges or barriers to entry or growth,
businesses have the data they need to build accurate go-to-market strategies and business
plans.

Typical outputs from a market and opportunity assessment include:

 Market sizing and growth projections


 Industry and segment attractiveness assessments
 Competitive Landscape
 Market sizing and growth projections
 SWOT assessment
 Market requirements and barriers to entry
 Go-to-market strategy

Market and opportunity Assessment Methods

Market and opportunity research oftentimes uses a combination of qualitative and


quantitative methods—depending on the type and complexity of offering, the market being
evaluated, and the stage in the assessment process:

 In-depth interviews are utilized typically in the early stages and are most useful for
very complex products and for gathering feedback from executives or subject matter
experts.
 Qualitative techniques such as focus groups and in-depth interviews are used at when
there is a need for a broad exploration of potential opportunities.
 Quantitative surveys are used further along the evaluation process when there is a
need for concrete numbers for market sizing analyses, business case presentations, or
testing market hypothesis.

Building a new Venture Team and


Challenges
Reasons for failure of New Venture
Venture Capital
Venture Capital is financing that investors provide to startup companies and small
businesses that are believed to have long-term growth potential. Venture capital generally
comes from well-off investors, investment banks and any other financial institutions.
However, it does not always take just a monetary form; it can be provided in the form of
technical or managerial expertise.

Features of Venture Capital Investments

 High Risk
 Lack of Liquidity
 Long term horizon
 Equity participation and capital gains
 Venture capital investments are made in innovative projects
 Suppliers of venture capital participate in the management of the company

Methods of Venture Capital Financing


 Equity
 Participating debentures
 Conditional loan

Advantages of Venture Capital

 They bring wealth and expertise to the company.


 Large sum of equity finance can be provided.
 The business does not stand the obligation to repay the money.
 In addition to capital, it provides valuable information, resources, technical assistance
to make a business successful.

Disadvantages of Venture Capital

 As the investors become part owners, the autonomy and control of the founder is lost.
 It is a lengthy and complex process.
 It is an uncertain form of financing.
 Benefit from such financing can be realized in long run only.

Angel Investors
Venture capital Sources and Documentation
required
The term venture capital was originally coined in U.S.A. and has been developing world
wide. The move spread in India in 1973 when R.S. Bhatt Committee recommended the
formation of venture capital fund in the country. The concept of venture capital was evolved
to help those persons who have good product ideas, but lack the necessary funds to convert
these ideas into production. It is a source of finance for the new and untried enterprises
having new ideas and new technologies with high risk, but with a potential for rapid
growth. Venture capital is usually structured in the form of equity and debt capital. It is
provided by the wealthy investors, firms, institutions and companies for all stages of
financing the new venture. Some think that venture capital is the early-stage financing of new
start-up ventures. Others think that venture capital is the financing of high and new
technology-based enterprises. More accurately, venture capital is an alternative form of
equity and debt financing made available to new ventures who have technically qualified
entrepreneurs with inadequate funds, having high risk but good growth prospects. A few
definitions of Venture Capital are as follows :

International Finance Corporation, Washington (IFCW) defines venture capital as “equity or


equity featured capital seaking investment in new ideas, new companies, new products, new
processes or new services that offer the potential of high returns on invest. ment. It may also
include, investment in turn around situations, ” According to the Bank of England, “Venture
capital is an activity by which investors support entrepreneurial talent with finance
and•business skills to exploit capital gain.” According to Pratt, Venture capital is thought of
as, “the early stage financing of new and young enterprises seeking to grow rapid Thus,
venture capital is an alternative form o/ equity financing made available to new ventures and
technically qualified entrepreneurs with inadequate funds, high risk and good
growth prospects.

Entrepreneurial firms which are high risk units, high return ventures and which face the
difficulty of funds get their finances from venture capitalists, This type of capital is provided
only for new ventures.
What is Crowdfunding?
Crowdfunding refers to how the business can raise capital from many
individuals beyond friends, family, relatives, and customers by
posting the project details on websites and other social media
platforms. It is the source of finance that does not involve banks or
other financial institutions.

How does it Work?


 The entrepreneur who wants to raise funds through
crowdfunding and the small investors interested in funding
new businesses and business ideas must register at the official
crowdfunding websites. These websites are the medium
between investors and entrepreneurs.
 The entrepreneur has to put the concept and projections of
the business through the crowdfunding website so potential
investors can decide whether to invest.
 Along with the idea and forecasts, the entrepreneur has to
quote the minimum amount the investor can invest. The
minimum amount can be as low as $10.
 The potential investor needs to show interest in investing, the
minimum amount it can sponsor, and the procedure and
details of the investments.
 If overapplications are received, they will repay the excess
money to the investors.
 Once the funds are raised and received, the entrepreneur pays
fees to the crowdfunding websites. The cost is based on the
percentage of fundraising.
 The profit generated from the business needs to be shared
with the investors by return on investment.
Types of Crowdfunding

Examples of Crowdfunding
Animoodles is one of the companies which raised funds through the
idea of crowdfunding. It started a business of manufacturing and
supplying advanced toys with the character of animals and famous
cartoons and the sound on them through the magnet on the back
of toys. The company put the idea and collected the funds through
crowdfunding within 11 hours. They raised around $1.5 million in
the campaign of raising $1 million.

The entrepreneur can present the idea so effectively that it would


attract many investors.

Rules
 All the transactions from the fund raised from crowdfunding
need to be registered with the security exchange commission
unless it meets the exemption criteria defined by the
commission.
 Projects must be displayed on the website and registered with
the security exchange commission, and the business for which
funds are to be raised needs to be legal.
 Transparent accounts and movement of fund statements are
to be displayed on the website so that the investors can get
information about the application of their funds.
 The Security Exchange Commission needs to put a yearly limit
on the amount raised in aggregate and by individual investors.
 One must file all disclosures and information with the security
exchange commission.

Challenges
 Attracting potential investors is difficult as the company needs
to earn trust through convincing projects.
 More transparency and registration of transactions with the
security exchange commission may lead to no secrecy as the
business needs secrecy regarding important matters.
 The targets and deadlines defined in the project need to be
fulfilled on time and realistic.
 Timely returns are the biggest challenge because of low or no
returns, the ratings, and the organization’s reputation.

Advantages
 One can raise these funds without any security.
 It is an easy and useful way of raising funds.
 Through this, one can raise funds within a short period.
 It is an effective way of promoting an attractive business idea
and talent.
 It can attract many small investors as the minimum investment
is low and affordable.

Risks
 The major risk involved in crowdfunding is the risk of fraud or
loss of investment.
 The company’s risk might not fulfill the commitments due to
unfavorable business conditions or other reasons.
 Risk of failure of the projected plan and dealing with it.
 Risk of payment of a return on investment on a timely basis.

CHARACTERISTICS OR ESSENTIALS OF VENTURE CAPITAL

The venture capital financing is different from traditional or conventional financing in that
the traditional financiers invest in proven technologies and low risk ventures, whereas
venture capitalists invest in new technologies and high risk ventures. Some of the main
distinguishing features of venture capital may be summarised as follows :
(1) High Risk : Venture capitalists provide finance to high risk ‘high-reward ventures. These
risks involve technology risk, market risk, liquidity risk or any other type of risk.

(2) Equity-Debt Financing : Venture capitalists manage for both equity and debt finances.
They invest in shares to get high returns. They earn capital gains by selling the shares once
the enterprise prove profitable. They provide debt financing in the form of debentures.

(3) Long-Term Investment : Venture financing is a long-term investment of funds. Funds


are provided för 5 to 10 years. Venture capi!al is not repayable on demand. The investor has
to wait for a long time to earn profit.

(4) Participation in Management : As already explained venture capitalist not only invests
in the equity shareholding of the entrepreneurs company but also participates in the
management affairs and gives his advice from time to time. Venture Capitalist has an active
involvement in the business of the entrepreneur after making an investment. Thus we can say
that venture capitalists don’t just invest, rather they build companies.

(5) Creative Capital : Venture Capital is termed as a creative capital as it propelled new
ideas to major commercial successes. It helps entrepreneurs to launch enterprise with a
specific promise.

(6) Professional Entrepreneurs : Usually, the venture capital is provided to those


entrepreneurs who are professionally or technically qualified but lack adequate funds to start
a new venture. The entrepreneur should have the capability to make an intense effort to do
the business. He should also have proper knowledge of his markets, along with risk
management quality.

(7) New Technology : Venture capitalists provide finance usually to those entrepreneur who
try or employ new technology which may produce uncertain results.

SOURCES OF VENTURE CAPITAL

The concept of venture capital was originated in the U.S.A. Now it has become a worldwide
concept in the field of risk financing of industrial projects. The development of venture
capital in India is still in infancy, being about a decade old. It is a growing capital market. In
fact in India, ‘risk financing is still in an evolutionary state. The funds available to Indian
venture capital industry are small. What is the need or relevance of venture capital in India
when there are commercial banks and financial institutions to provide funds to industrial
enterprises, small or large ? In developed countries, where there is highly progressive
industrial environment as well as advanced entrepreneurial culture, it is common
for entrepreneurs to set up companies to produce new products by Obtaining funds from
venture capitalists. On the other hand, in India and also in other developing countries, ‘risk’
financing of this type is yet in its infant stage. Of course, there are a large number
of commercial banks and financial institutions in India, which provide ‘traditional’ (non-risk)
financing mainly to those enterprises that use proven or established technologies with
minimum level of risk. Such financing is collateral-security oriented and asset-based.
It involves uniform repayment of fixed instalment. It is security oriented rather than risk-
oriented. Traditional finance has a preference for foreign technology firms, and do not trust
the entrepreneurs who adopt new products or new technology involving greater risk. In this
background of weaknesses or drawbacks of traditional finance the venture capital assumes an
important role to play in providing risk finance to small and medium
size entrepreneurs. Sources of Venture Capital in India may be divided into three categories :

(I) All India Level Venture Capital Funds.

(Il) State-Level Venture Capital Funds.

(Ill) Specific Venture Capital Funds.

(1) ALL INDIA LEVEL VENTURE CAPITAL FUNDS :– Many Venture Capital Funds
are established at All India level to provide venture capital in India. Some of the important
venture capital funds are as follows :

(1) IFCI Venture Capital Fund Limited : IFCI provided venture capital assistance for the
first time in 1975 after the establishment of risk capital foundation (RCF). The financial
capital assistance under IFCI’s risk foundation scheme has been mainly for the traditional
industries like textile, iron and steel and chemical. It provides assistance basically for
technologists and professionals. General limit of contribution is up to 50% of promoter’s
contribution, subject to a ceilling of Rs. million. Only public limited companies were eligible
for this finance. IFCI charge no interest on such loans but a nominal service charge is levied.
Mode of repayment was that, repayment will be out of dividends and the period of repayment
is fixed according to the facts of each case.

(2) IDBI Venture Capital Fund : IDBI Venture Capital Fund (VCF) was started in 1986 with
an initial capital ofRs. 10 crore. This fund provide venture capitåLto low and medium grade
ventures. IDBI has started seed capital scheme for venture capital finance Main points of seed
capital scheme of IDBI are :

(i) Project cost upto ‘Rs.Æ0 ‘millions’and project should be in small or medium firms.

(ii) Assistance will not exceed Rs. 1.5 per project.

(iii) Debt-equity norm of 2 : 1 is stipulated.

(iv) Free of interest loans and nominal service charge.

(v) Assistance is provided through SIDCs/SFCs.

(vi) Policy of being lender of last resort for financial requirements.

(3) ICICI Venture Management Company Ltd : The Government of India issued Venture
Capital Guidelines in Novem- ber, 1988. These guidelines authorised all India Financial
Institutions, Commercial Banks and their subsidiaries to launch venture capital companies.
ICICI in 1988 formed Technology Development and Investment Corporation of India.
(TDICI). This corporation managed various schemes •of venture capital financing on
commerciallines. This is also the largest venture capital firm in India. It provides assistance
to industries directly or through venture funds which are managed by it for other institutions
and venture funds out of its own resources. TDICI accepts and evaluates the promotor’s
business plan by knowing his management team, nature of his product, market conditions for
his product, competition, his investment requirement etc. TDICI goes through the
entrepreneur’s business plan, if it finds the plan to be good, and the promotor is clear about
his business he gets, his work is almost done, otherwise his project is dropped.

(4) Canbank Venture Capital Fund Limited (CVCFL) : Canbank Venture Capital Fund
Limited was established in 1989. At present Canbank has three subsidiary units which
possess Rs. 164 crore, Rs. 10•5 crore and Rs. 30 crore respectively. Up to 30th March 2003
Canbank has provided financial aid of Rs. 3424 crore to 51 institutions. Influenced by the
success of these venture funds, Canbank is going to establish a fourth venture fund
subsidiary, which will be able to provide assistance of venture capital of Rs. 100 crore.

(11) STATE LEVEL VENTURE CAPITAL FUNDS :- In India various state level venture
capital funds have been established by the State Governments after realising the significance
and role of venture capital in industrial development. These venture capital funds have been
promoted by state government. A few among them are :

(1) Gujarat venture Finance Limited (GVFL) : Under venture capital funds sponsored by
state level financial institutions is

(iii) Debt-equity norm of 2 : 1 is stipulated.

(iv) Free of interest loans and nominal service charge.

(v) Assistance is provided through SIDCs/SFCs.

(vi) Policy of being lender of last resort for financial requirements.

(3) ICICI Venture Management Company Ltd : The Government of India issued Venture
Capital Guidelines in November, 1988. These guidelines authorised all India Financial
Institutions, Commercial Banks and their subsidiaries to launch venture capital companies.
ICICI in 1988 formed Technology Development and Investment Corporation of India.
(TDICI). This corporation managed various schemes •of venture capital financing on
commerciallines. This is also the largest venture capital firm in India. It provides assistance
to industries directly or through venture funds which are managed by it for other institutions
and venture funds out of its own resources. TDICI accepts and evaluates the promotor’s
business plan by knowing his management team, nature of his product, market conditions for
his product, competition, his investment requirement etc. TDICI goes through the
entrepreneur’s business plan, if it finds the plan to be good, and the promotor is clear about
his business he gets, his work is almost done, otherwise his project is dropped.

(4) Canbank Venture Capital Fund Limited (CVCFL): Canbank Venture Capital Fund
Limited was established in 1989. At present Canbank has three subsidiary units which
possess Rs. 164 crore, Rs. 10.5 crore and Rs. 30 crore respectively. Up to 30th March 2003
Canbank has provided financial aid of Rs. 3424 crore to 51 institutions. Influenced by the
success of these venture funds, Canbank is going to establish a fourth venture fund subsi
diary, which will be able to provide assistance of venture capital of Rs. 100 crore.

(11) srrATE LEVEL VENTURE CAPITAL FUNDS

In India various state level venture capital funds have been established by the State
Governments after realising the significance and role of venture capital in industrial
development. These venture capital funds have been promoted by state government. A few
among them are :

(1) Gujrat venture Finance Limited (GVFL) : Under venture capital funds sponsored by
state level financial institutions is GVFL promoted in July, 1990 to provide venture capital
for the commercialisation of new technological developments and innovative products. It
shares risk of entrepreneurs by providing financial as. sistance in the form of equity and
quasi equity.

(2) Punjab Infotech Venture Fund (PIVF) : PIVF i dedicated to investing in companies in
the Information Technology Sector within the State of Punjab. The Fund’s investments in
companies will be through the route of equity and quasi equity instruments. The Fund will
seek to achieve its returns through dividends and capital gains at the time of
divestment through an initial public offering or a negotiated sale ofits holding. The Fund is
being managed by Punjab Venture Capital Limited, an asset management company,
promoted by the PSIDC acting as the nodal agency ofthe Government of Punjab.

(111) SPECIFIC VENTURE CAPITAL FUNDS Despite of Commercial Banks, Private


Sector Banks and Financial institutions are also providing venture capital funds
to entrepreneurs. Some ofthese VCFs are :

(i) India Investment Fund which is established by Grindly Bank and afterwards it was taken
over by Standard Chartered Bank.

(ii) Credit Capital Venture Fund established by Credit Capital Corporation.

(iii) Technology Development and Information Co. Ltd. At present around 16 private sector
funds are registered with SEBI and this number is expected to grow faster.

DIFFERENCE BETWEEN TRADITIONAL AND VENTURE CAPITAL

Venture Capital
Traditional Financing
Financing
Traditional Financing Provides funds to new
Technology
or untried technology.
Risk It involves low risk. It involves high risk.
The lender adopts a
This is not necessary
policy of ‘playing safe’
to
and insists on some
demand security for
Security
valuable collateral
venture capital
security for repayment
financing.
of loan amount.
Participation in Investor does not take The venture capitalist
Management
actively involves
any responsibility for
himself in the
management of the
management of
borrower’s enterprise.
borrower’s firm.
Basically it is
provided

inthe start-up stage,

although it is also
It is provided in the given
Finance Stage
developmental stage. for expansion,

development or

traditional acquisition

purpöses
it is generally a It is a long-term
Period
medium-term finance financing.
Traditional lenders Venture capitalists
Amount of Funds
provide small funds. provide huge funds.
They maintain long-

They maintain conditional commercial term business


Relations relation-
relations.
ships with
entrepreneurs.

Various documents required for venture capital.

Venture capital process is different from normal project financing. Tyebjee and Bruno (1984)
have given a model of venture capital investment activity which, with some variations, is
conmonthly used at present. According to them the venture capital investment process is a
sequential process that involve five steps. Documents required at each stage are as follows :

(1) Deal Orientation : At this stage, a letter of introduction is necessary from the referring
party sent to the Venture Capital Company. It should present details about the potential
venture, its technical viability and good image of the entrepreneur.
(2) Screening : Screening of proposals is necessary to save the time and money cost. Only
proposals which clear screening test are considered for evaluation. At this stage the Venture
Capital Company may ask for technology and product profiles as well as venture or
investment profile depending on the criteria used in the screening process.

(3) Evaluation or Due Diligence : Evaluation or due diligence means careful and proper
detailed analysis, The proposals that have successfully passed through the screening process
are then subjected to a detailed evaluation process called due diligence. Most of the venture
coming to a venture capitalist are new ventures being set up by first-time promoter, neither
the ventures have any track record nor the entrepreneur are have any operating experience. In
such cases, the venture capital company uses a subjective but comprehensive evaluation. At
this stage the Business Plan is an important document upon which the evaluation is based.
Most venture capitalists ask for a business plan to make an assessment of the possible risk
and return on the venture. Well prepared plan is the best introduction of the entrepreneur who
is going to set up a new venture. A detailed and well-organized business plan is the only way
to gain the attention Of the venture capitalist and to obtain the needed funds.

(4) Deal Structuring : If the proposed venture and its business plan are found as viable, then
venture capitalist and the entrepreneur negotiate the terms of the deal, such as : the amount
Of money to be invested, the form of investment (equity or debt), the price of Investment,
exit period, etc. This process is termed as deal structuring. At this stage, a written agreement
is prepared between the entrepreneur and the venture capitalist. This contains all the
terms and conditions agreed between them. This agreement is written on a stamp paper,
signed by both and is registered with the government agency. It is treated as a valid evidence
before a court of law in case of a dispute.

Seed Capital

Seed Capital is relatively small amount of capital provided to an entrepreneur, generally to


prove a concept or an idea. According to The European Venture Capital Association “Seed
Finance is the fianncing of the initial product development or the capital provided to an
entrepreneur to prove the feasibility of profitability; seed capital in other words is a start up
capital. ” According to Mumford and Dotzler, “seed capital is used to finance initial research
and development on the concept, build a prototype, to market research analysis the business
plan. ” Seed Finance stage is the most difficult stage to finance because (i) the entrepreneur’s
idea is yet to take a definite and commercial shape, (ii) he has no business plan, (iii) his
product has recently passed through research and development stage (iv) there is yet
no complete management team. When an entrepreneur who does not have adequate funds of
his own, approaches the suppliers of seed capital with his proposal. It is the riskiest stage of
venture capital because returns from seed capital investments typically don’t start to come
through for seven to ten years.

ANGEL INVESTORS

Angel investors are also called informal investors, angel funders, private investors, seed investors or
business angels. These are individuals, normally affluent, who inject capital for startups in exchange
for ownership equity or convertible debt. Some angel investors invest through crowdfunding
platforms online or build angel investor networks to pool capital together.
10 essential components of a business plan
Effective business plans contain several key components that cover various aspects of a
company's goals. The most important parts of a business plan include:

1. Executive summary

The executive summary is the first and one of the most critical parts of a business plan. This
summary provides an overview of the business plan as a whole and highlights what the
business plan will cover. It's often best to write the executive summary last so that you have a
complete understanding of your plan and can effectively summarize it.

Your executive summary includes your organization's mission statement and the products and
services you plan to offer or currently offer. You may also want to include why you are
starting the company if the business plan is for a new organization.

2. Business description

The next part of a business plan is the business description. This component provides a
comprehensive description of your business and its goals, products, services and target
customer base. Include details regarding the industry your company plans to serve along with
any trends and major competitors within the industry. Add you and your team's experience in
the industry and what distinguishes your company from the competition in your business
description.

3. Market analysis and strategy

The purpose of the market analysis and strategy component of a business plan is to research
and identify a company's primary target audience and where to find this audience. Factors to
cover in this section include:

 The geographic locations of your target markets


 The primary pain points experienced by your target customers
 The most prominent needs of your target market and how your products or services
can meet these needs
 The demographics of your target audience
 Where your target market spends most of their time, such as particular social media
platforms and physical locations

The goal of this section is to clearly define your target audience so that you can make
strategic estimations about how your product or service might perform with this audience.

4. Marketing and sales plan

This part of your business plan covers the specifics of how you plan to market and sell your
products and services. This section includes:
 Your anticipated marketing and promotion strategies
 Pricing plans for your company's products and services
 Your strategies for making sales
 Reasons for your target audience to purchase from your company versus your
competition
 Your organization's unique selling proposal
 How you plan to get your products and services in front of your target audience

5. Management and organization description

This section of your business plan explores the details of your business's management and
organization strategy. Introduce your company leaders and their qualifications and
responsibilities within your business. You can also include human resources requirements
and the legal structure of your company.

6. Products and services description

Use this section to further expand on the details of the products and services your company
offers that you covered in the executive summary. Include all relevant information about your
products and services. This includes how you plan to manufacture them, how long they can
last, what needs they may meet and how much you project it might cost to create them.

7. Competitive analysis

Add a detailed competitive analysis that clearly outlines a comparison of your organization to
your competitors. Outline your competitors' weaknesses and strengths and how you expect
your company might compare to these. Include any advantages or distinctions your
competition has in the marketplace. In addition, explore what makes your business different
from other companies in the industry, along with any potential issues you may face when
entering the marketplace, if applicable.

8. Operating plan

This part of your business plan describes how you plan to operate your company. Include
information regarding how and where your company plans to operate, such as shipping
logistics or patents for intellectual property. The operating plan also details operations related
to personnel, like how many employees you hope to hire in various departments.

9. Financial projection and needs

The financial section of your business plan explains how you anticipate bringing in revenue.
If you need funding for your business, this section also describes the sources and amounts for
that funding. Include your financial statements, an analysis of these statements and a cash
flow projection.

10. Exhibits and appendices

The last section of your business plan provides any extra information to further support the
details outlined in your plan. You can also include exhibits and appendices to support the
viability of your business plan and give investors a clear understanding of the research that
backs your plan. Common information to put in this section includes:

 Resumes of company management and other stakeholders


 Marketing research
 Permits
 Proposed or current marketing materials
 Relevant legal documentation
 Pictures of your product
 Financial documents

What is Business Planning?


Business planning is the process whereby an organization’s leaders figure
out the best roadmap for growth and document their plan for success.

The business planning process includes diagnosing the company’s internal


strengths and weaknesses, improving its efficiency, working out how it will
compete against rival firms in the future, and setting milestones for
progress so they can be measured.

Feasibility Analysis Aspects


A well-designed study should offer a historical background of the business or project, such as
a description of the product or service, accounting statements, details of operations and
management, marketing research and policies, financial data, legal requirements, and tax
obligations. Generally, such studies precede technical development and project
implementation.

Five Areas of Project Feasibility

A feasibility study evaluates the project’s potential for success; therefore, perceived
objectivity is an important factor in the credibility of the study for potential investors and
lending institutions. There are five types of feasibility study—separate areas that a feasibility
study examines, described below.

1. Technical Feasibility – this assessment focuses on the technical resources available


to the organization. It helps organizations determine whether the technical resources
meet capacity and whether the technical team is capable of converting the ideas into
working systems. Technical feasibility also involves evaluation of the hardware,
software, and other technology requirements of the proposed system. As an
exaggerated example, an organization wouldn’t want to try to put Star Trek’s
transporters in their building—currently, this project is not technically feasible.
2. Economic Feasibility – this assessment typically involves a cost/ benefits analysis of
the project, helping organizations determine the viability, cost, and benefits associated
with a project before financial resources are allocated. It also serves as an independent
project assessment and enhances project credibility—helping decision makers
determine the positive economic benefits to the organization that the proposed project
will provide.
3. Legal Feasibility – this assessment investigates whether any aspect of the proposed
project conflicts with legal requirements like zoning laws, data protection acts, or
social media laws. Let’s say an organization wants to construct a new office building
in a specific location. A feasibility study might reveal the organization’s ideal location
isn’t zoned for that type of business. That organization has just saved considerable
time and effort by learning that their project was not feasible right from the beginning.
4. Operational Feasibility – this assessment involves undertaking a study to analyze
and determine whether—and how well—the organization’s needs can be met by
completing the project. Operational feasibility studies also analyze how a project plan
satisfies the requirements identified in the requirements analysis phase of system
development.
5. Scheduling Feasibility – this assessment is the most important for project success;
after all, a project will fail if not completed on time. In scheduling feasibility, an
Provides valuable information for a “go/no-go” decision

 Narrows the business alternatives


 Identifies a valid reason to undertake the project
 Enhances the success rate by evaluating multiple parameters
 Aids decision-making on the project
 Identifies reasons not to proceed

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