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Raising fund from Financial Institution - YouTube
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I welcome you in lecture 18 regarding
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legal compliance for incorporating
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start-up and I'm in the module of
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Finance and legal compliance and now I'm
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pacifically talk regarding raising the
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fund from financial institution and I
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believe I have used this particular word
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before before in my different lectures
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different point of time in my lectures
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and before I go ahead how to raise the
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fun let me explain to you what do I mean
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by the word financial institution now
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financial institutions are generally
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those
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companies or those forms who basically
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lend the money or make an investment
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into the business because you know they
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expect kind of a return of their
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investment and whatever the investment
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they get they basically distribute
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amongst their customer or the investors
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or depositors so in case of the
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financial institution in in here you
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will find our basically named number of
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or types of her banks like you know
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first one I have said is a civil bank
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Sydal bank is actually those bank which
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have been included in the seal of
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banking regulation regulation because
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you know the bank are generally governed
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by Banking Regulation Act 1956 and these
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particular banking regulations are act
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basically administered by the Reserve
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Bank of India so they basically notify
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that which is a civil man now the Sidel
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bank can do the commercial lending and
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they're in there is a pacifier guideline
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is there and they keep on you know
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improve this particular guideline or
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chance this particular guideline in
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which sector this particular Bank and
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make the lending now a few minutes back
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I was talking with you the lending by
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the Citibank to the SI mm SME now you
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will find this particular deficiency is
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almost available with all the bank
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because come and want to promote this
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particular MSM in sectors and in at
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present also you will find that there is
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a dedicated you know division also there
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in all the central bank relating to the
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startups so either you but you fall
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within the MSM YZ category as a start-up
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or you just want to promote it as a
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start-up you might access or raise the
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fund from this particular sitting back
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please remember the civil bank make an
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investment in the different way it might
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give
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capital investment with a particular
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deviation of time or they might give you
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the loan most of the cases they
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generally keep the working capital that
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means they keep the money in form of a
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loan yourself now again these particular
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relationship between the signal bank and
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the startup is governed by the bilateral
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agreement then you will find there is a
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commercial bank commercial bank are
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those bank who are basically
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incorporated for lending to the business
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only and particular segment of the
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business where the government want to
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promote that particular segment or where
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the government wants to address this
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particular segment need because there is
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a lot of demand from that particular
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segment and they basically supply to the
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domestic name and this particular
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commercial bank they are created for
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that particular purpose so commercial
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bank is differ from the serial bank
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because Siddal banking is generally you
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know do the transaction with the common
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people or take the deposit from the
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common people but in case of the
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commercial bank they might not be
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allowed to take the deposit from the
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normal people or normal public they
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might be only allowed to access a some
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kind of a fund for raising their capital
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which they can invest in the startup or
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they can invest in SMS now commercial
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bank again you know subject to certain
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regulation and you know it has been
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specified that in which at the area they
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are they can go for making an investment
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and in case of the commercial bank you
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would find that they basically turned it
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up Pacific industry as I have told
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already now then you will find the
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Industrial and Development Bank and
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industrial and develop Bank and Bank was
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quite old concept again in India and we
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found that this is initiated around
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1960s because at that particular point
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of time they wanted to address
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is the industrial growth or domestic
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industrial growth and they thought there
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should be some specific you know
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financial institution who are dedicated
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for this particular purpose now
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initially this industrial and
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development bank used to finance by the
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commercial bank or the signal bank or
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maybe the government or the RBI directly
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but later on we find in some cases this
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particular industrial or Development
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Bank is allowed to raise the fund from
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the market itself and then they can
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finance to the industry itself but
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hidden also again the mandate is only to
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finance to this particular you know
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particular industry or sector for the
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purpose of the development
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now this particular industrial bank also
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can you know raise the deposits or raise
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the money from the other corporates to
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who wanted to make an investment of
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their reserves or the other proceeds in
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in this particular development ban now
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again you will find there is a
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co-operative bank is their co-operative
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bank is promoted to promoted by the
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different state government to create a
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local liquidity that means to local
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availability of the fund now cooperative
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banks generally raise the fund from the
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public at large or maybe target group of
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people and then they you know give the
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make the you know investment in or they
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keep the loan to different kind of
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businesses
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so again the co-operative bank loud
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chunk or the majority of the money
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basically goes to the startup or maybe
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it goes to the SMEs
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to put it in other way around and in all
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this co-operative bank will find now
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there is a centralized system has been
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created so that you know they can
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facilitate in the funding to the MSME
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zalta startup
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now again you will find there is a
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specialized bank is there like you know
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CID B's you know all other kind of bank
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who are basically finance to the small
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startups and you know they are mandated
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with that and they have also provided
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mandate that what kind of instrument
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they can make an investment in this
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particular startup now again apart from
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these particular banks you will find
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that there is a different other
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financial institutions these are like
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insurance fund and you will find one
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point of time in India insurance market
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was quite close market because in this
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particular market only the government
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companies has has a lot to operate like
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you know there was a life insurance
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company as well as there is a general
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insurance company and all those
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particular companies are the common
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companies and they have also a lot of
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restrictions relating to investment of
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their fund most of the time you will
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find this particular industrial this
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particular insurance fund used to make
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an investment in the common securities
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but I now you will find in present times
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they have also been allowed to make and
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diversify their investment into the
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other corporate portfolios and they are
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even allowed to access to the equity
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equity market either in primary as well
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as secondary market so in generally if
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your company is a public listed company
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or if it is a public company then you
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will find the able to access this
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particular fund and please remember they
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generally do not fund you in the
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beginning or when you are starting your
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startup the only funding when you make a
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progress or you have a very good balance
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it or you have a you are in the growth
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curve and your market is quite stable to
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make the earning then only the they make
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an investment and you know this
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particular sector is now open to find
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out that they can make an investment but
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still you will find they can only
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make an investment every less percentage
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of their entire fund into this
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particular equity or the corporate form
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now you will find the Mutual's Mutual's
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are those people okay again who
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basically raised their fund from the
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public by issuing the unit's
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and Mitchell actually try to make the
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money by by investing in different
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portfolios and then you know getting the
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money out of those particular portfolio
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to distribute back to those people who
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are made an investment to these
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particular Mutual's now again there is a
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restriction relating the mutual fund
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where they can make an investment but
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they are allowed to make an investment
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into the equity or corporate bonds or
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corporate Avengers now again if you want
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to access this particular fund then you
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cannot do it in the beginning of your
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startup again you need to be a quite
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mature and you should have a good
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balance it to access this particular
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fund the similar case in case of the
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pension fund pensions were not generally
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put into a very secure fun part you know
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to address a growth many of the time
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they also allowed to make an investment
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in the corporate fund so if you are
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having a good balance sheet if you have
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a good track financial track record if
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you have a good market credential then
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in that case again you can go for the
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pension fund now as I have talked with
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you in my last lecture relating the
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public financial institution there was a
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some kind of institution which has been
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designated as a public financial
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institution under the previous Companies
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Act that is C a 1956 Companies Act 1956
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but this particular designation has
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taken away under the present act of
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present like present companies I see a 2
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0 1 3 but nevertheless it is important
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to know which are them call as public
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financial institution like you know they
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they are generally the industrial Trade
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& Investment Corporation of in
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Limited and these particular
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organization is incorporated on the
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Companies Act then you will find
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Industrial Finance Corporation of India
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it is created under the special act then
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the Industrial Development Bank of India
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Life Insurance Corporation unit Trust of
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India then you know infrastructure
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development and finance company so these
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all this particular financial
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institution has a specific mandate to
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make an investment into a particular
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sector so if you are looking for a
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working capital or short-term capital or
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if you are looking for quick investment
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without going to the primary market then
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in that case you generally access to
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this particular you know public
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financial institutions of or you know
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other financial institution because they
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are the people who are ready to make an
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investment if they found that there is a
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potential or there is a growth they can
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address out of out of this particular
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investment now it it basically you know
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works in in the following manner that it
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can be lending under general or specific
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agreement that means you wanted to do a
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Pacific work within your organization or
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oh you wanted to start a project
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particular project within your
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organization and you basically create a
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project report and then you submit and
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you ask that you know what kind of a
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fund you are looking for and how much
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how much amount you are looking for what
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is the rate of repayment of that
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particular fund and you know of what the
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benefit this particular investors are
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going to get so there can be a specific
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project against which you can raise the
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fund or it might be a general in nature
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because you just want to address the
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growth which you are already doing in
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regular basis and accordingly you want
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to get some kind of some fun into this
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thing and if you are looking for that
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kind of fund then
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you know are you looking for a quickie
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or the dead and you know what is the
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repayment policy or what is the benefit
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you are going to give even many of the
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time it might so happen that you know
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when you are getting the equity and you
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might not able to make a payment of a
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good dividend initially but you enters
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into agreement where and you specify
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that in later on you are going to issue
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the bonus yet to this particular
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organization so that when you will go
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for an IPO or you're going to go for
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secondary sell at that particular point
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of time these organization can make the
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money out of by selling this particular
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equity so whatever whatever the way or
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you know even they can use convertibles
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you know which which they can have an
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option to convert this particular
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debenture into the equity and by this
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process they can make money also in
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future now there can be a negotiated
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investment a go sister investment again
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wherein you you basically mutually
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agreed upon the particular pattern of
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investment and and you you also decide
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the terms and condition on which you are
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going to make this particular investment
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now it can be through the issuing of the
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differential bond or it can be through
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the issue of qualified institutional
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buyer possibly I'm going to discuss this
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particular issue in my subsequent
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lecture so there can be negotiated terms
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relating to the financing of the
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corporations and there can be a Pacific
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gestation period before before this
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particular fund can be withdrawn by this
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particular final public financing
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institution or there can be a you know
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process which is define how they can
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dilute this particular fun now they can
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also responds to the book running a book
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running for the investment and this book
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running maybe for equity date or
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converter
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and book running means we're in you
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wanted to issue the Sears either through
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private placement or a public play or
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you know primary market and there you
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want these particular financial
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institution to come in board and they
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make an investment into your equity so
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in those particular circumstances you
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basically you know respond to these
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particular investment and you generally
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decide that how much premium you are
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going to pay for these particular
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investment and then also you understand
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that you know there will be a potential
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growth of this particular industry so
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you can dilute your fund in future when
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it will be listed for for treading into
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the secondary market now you can also go
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for acquisition through the secondary
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market and in many of the time you will
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find this particular public financial
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institutions are generally going to the
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secondary market to making an investment
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into the company shares and this
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particular and if you look into the
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portfolio of or any companies which are
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listed you will find the majority of
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chunk of the shares are held by either
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dii or fi I di M is domestic
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institutional investors and if I I means
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foreign final foreign institutional
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investors and they are basically all the
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financial institutions so you know they
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basically make any portfolio investment
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and then they try to get the return
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either through the market
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capitalizations or through the dividend
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payment of the dividend or for waiting
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for you no longer investment so that
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they can be alerted with the bonus here
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or there can be split in Sears so that
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they can make money out of this
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particular process so this is the way
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generally the public financial
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institution make an investment in the
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startup but please remember they
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generally do not make an investment
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in the beginning of the startup it is
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basically in much later part of this
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particular you know the startup or when
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they start over in the growth part they
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make an investment up to this
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