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ABFM MODULE - D
Chapter 19: HYBRID FINANCE (PART-I)

What we will study?

*What is Hybrid Finance?
*What are the advantages and disadvantages of Hybrid
Finance?
*What are the features of Warrants?
*What are the features of convertible debentures?
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INTRODUCTION:
The characteristics of debt and equity which are combined
into a single instrument is known as a hybrid security.
They allow for greater flexibility to postpone the payment of
debt service compared to traditional forms of debt, and they
can be beneficial to all parties involved, including investors,
shareholders, and issuers.
For many years, Indian companies have been actively
participating in the hybrid securities market by issuing
preference shares, optionally or compulsorily convertible
securities/debentures, and foreign currency convertible bonds
(FCCB), among other types of hybrid securities.
The issuance of hybrid securities, which give companies the
ability to optimise the proportion of debt to equity in their
overall capital structure, has become the preferred method
for companies.
The maturity terms of hybrid issuances can vary, several call
options can be exercised, and there is some leeway to
increase the coupon rate.
The equity share capital of a company is the type of capital
that represents the investment by promotors and investors
who will always have a residual claim on the cash flows and
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assets of the company and shall also have the managerial
control and authority over the company.
On the other hand, debt is often not related with managerial
control but does reflect a fixed claim on the cash flow and
assets of the company.
The two extremes of the finance spectrum are known as
equity and debt, respectively.
In the middle are hybrid forms of finance, which can be
thought of as a combination of equity and debt in their make-
up.
Preference capital, warrants, convertible debentures, and
inventive hybrids are some of the key forms of hybrid
financing.
In most cases, preference capital will come with a
predetermined rate of dividend, which will be paid out at the
directors' discretion whenever the firm has surplus funds
available for distribution.
The owner of a warrant has the ability, for a limited time and
at a predetermined cost, to purchase an agreed-upon number
of equity shares in a company.
A debenture that can be converted into equity shares, either
in whole or in part, is referred to as a convertible debenture.
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It is possible that the conversion won't be required at all.
A convertible bond that is denominated in a foreign currency
is a subtype of a convertible debenture, called Foreign
Currency Convertible Bond (FCCB).
This is an instrument issued outside India and denominated in
a different currency.
US Dollar is one of the most common currencies used for the
Foreign Currency Convertible Bonds.
Although quite popular some time back and remaining as one
of the most crucial vehicles for the purpose of corporate
India's capital raising efforts, of late the proportion of Foreign
Currency Convertible Bonds to External Commercial
Borrowings (ECB) and Rupee Denominated Bonds (RDB) has
been quite low as is evident from the following table:
DATA ON ECB/FCCB/RDB FOR THE PERIOD

JANUARY, 2021 TO SEPTEMBER, 2022

NATURE NO. OF CASES AMOUNT IN USD % SHARE

MILLION

ECB 1516 63848.70 95.02

FCCB 3 425.00 0.63

RDB 33 1920.64 4.35

TOTAL 67194.34 100.00

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A hybrid security is considered to be innovative if the reward
of the security is connected to some general economic
variable such as the interest rate, exchange rate, or
commodities index.
ADVANTAGES AND DISADVANTAGES OF HYBRID SECURITIES:
Advantages:
Higher yield:
Hybrid securities generally offer a higher rate of return than
debt.
Less volatile market price:
Hybrid securities show less volatility in their market price as
there is a regular, pre-determined, return.
Risk diversification:
Hybrid securities can diversify the overall risk for the issuer as
these do not have any strict definition either equitable
securities or debt security.
Disadvantages:
Assessment is difficult:
Calculation of return on hybrid securities is not as simple as on
equity or bond securities and, therefore, investing through
these is more complicated.
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TYPES OF HYBRID SECURITIES:
While there are many types of hybrid securities, the most
common are:
1. Preference Shares.
2. Warrants.
3. Convertible Debentures/Bonds.
4. Foreign Currency Convertible Bonds (FCCB).
5. Mezzanine Financing.

FEATURES OF WARRANTS:
The holder of a warrant has the right but not the
responsibility to purchase a predetermined number of equity
shares at a predetermined price during a predetermined time
period.
This right is granted by the warrant.
In some cases, warrants are attached to the debt instruments
in order to "sweeten" the terms of debt issues.
In many cases, the warrants are issued to the promoters, on a
preferential basis, to provide them an option to increase their
stake in the company within a specified future period.
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For example, pursuant to the receipt of "In-principal
Approval" from both the NSE and the BSE, the Allotment
Committee of the Board of Directors of Man Industries (India)
Ltd. allotted Rs. 30 lakhs worth of warrants that are eligible
for conversion into equity shares to M/s Man Finance Private
Limited, a Promoter Group Entity in November 2020, at an
issue price of 65 rupees per warrant along with a premium of
60 rupees per warrant on a preferential basis in accordance
with the SEBI (Issue of Capital and Disclosure Requirements)
Regulations, 2018 [last amended on April 27, 2022].
The Company also received from M/s Man Finance Private
Limited 25% of the consideration amount equalling Rs.
4,87,50,000/- that constituted the statutory minimum.
Warrants are also issued to institutional investors and other
strategic investors, by the way of preferential allotment, to
allow such entities to increase their stake if the company
performs well.
As per regulation in India, in the case of preferential
allotments, the buyer of the warrants has to pay 25% of the
price, upfront.
This amount is adjusted against the final payment that is
made in case the warrants are exercised.
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In case the warrants are not exercised, the entire upfront
payment is forfeited.
To protect the interest of the minority shareholders, the pre-
determined price of warrant conversion in cases of
preferential allotment cannot be less than either:
1) The average of the weekly high and low of the closing prices
of the related shares quoted on the stock exchange during the
6 months preceding the relevant date or,
2) The average of the weekly highs and lows of the closing
prices of the related shares quoted on a stock exchange during
the 2 weeks preceding the relevant date.
The warrants do not carry any dividend or voting rights.
Only after warrants are converted into equity shares, the
investor gets these rights.

FEATURES OF CONVERTIBLE DEBENTURES:

In India, convertible debentures have only been around for a
short period of time.
However, throughout this relatively short time span, major
alterations have been made to the characteristics of these
debentures.
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When they emerged into the scene for the first time in the
early 1980s, they were normally required to be compulsorily
convertible (either partially or completely) at a given
conversion price on a predetermined date.
The Controller of Capital Issues was the Authority which
decided about the terms that would apply to such debentures.
The Capital Issues Control Act was struck down in 1992, and in
the same year, the Securities and Exchange Board of India Act
(SEBI Act 1992) was passed.
This brought about a shift in the regulations that govern
convertible debentures.
The following are the provisions that apply to Fully or Partially
Convertible Debentures, also known as FCDs and PCDs, in
accordance with SEBI guidelines:
(a) It is required that the conversion premium as well as the
timing of the conversion be determined and reported in the
prospectus.
(b) If the conversion takes place at or after 18 months but
before 36 months from the date of allotment, the holder of
the debenture will have the option to convert either partially
or fully if the conversion takes place during this time period.
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(c) Unless the conversion duration is made optional with "put"
and "call" options, a conversion term, that is longer than 36
months, will not be approved.
(d) If the fully convertible debentures have a conversion time
that is longer than 18 months, there will be a mandatory
requirement for a credit rating.
As per SEBI guidelines there are now three different forms of
convertible debentures that can be issued in India:
(i) Debentures that are automatically convertible and have a
conversion provision that takes effect after 18 months.
(ii) Debentures with an optional conversion feature that allow
for the conversion to take place within 36 months.
(iii) Debentures that allow for conversion after 36 months but
have "call" and "put" features in addition to that provision.
DIFFERENCES BETWEEN WARRANTS AND CONVERTIBLE
DEBENTURES:
Both warrants and convertible debentures share the same
core property in their structure.
They confer a call option on the equity stock of the
corporation upon the holder of the security.
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However, there are several key distinctions between the two,
which are as follows:
(a) The debenture and the option in a convertible debenture
cannot be separated from one another.
However, a warrant, if issued as an attachment to debenture,
can be removed at any time.
(b) Warrants have the ability to be issued on their own. They
do not have to be associated with any other instrument.
(c) The conversion of convertible securities results in just an
accounting transfer, but the exercise of warrants leads to the
injection of additional capital into the company.
(d) The vast majority of convertibles have a call provision,
which provides the issuer with the option to either refund the
debt or force conversion.
This decision is based on whether the conversion value is
more than or lower than the call price.
Warrants, on the other hand, in usually cannot be cancelled.
(e) In case of warrants issued on preferential basis, 25%
amount is paid upfront and this is forfeited if the holder
decides not to convert these into equity shares.
In case of optionally convertible debentures, no forfeiture is
involved.
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ABFM MODULE - D
Chapter 19: HYBRID FINANCE (PART-II)

What we will study?

*What are the features of FCCB?
*What is Mezzanine financing?
*What is Innovative Hybrid?
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FEATURES OF FOREIGN CURRENCY CONVERTIBLE BOND (FCCB):
Foreign currency convertible bond (FCCB) is a bond issued in a
currency other than the issuer's domestic currency, i.e.,
foreign currency.
A convertible bond is a hybrid of debt and equity instruments.
The holder gets a regular coupon and principal payment, but
they also get the option to convert the bond into equity
shares.
The conversion rate at which the bonds will be converted to
equity is specified in the terms of issue of the bonds.
As the holder has the option, if the stock price is below the
conversion price on the relevant date, he will not convert the
bond into equity shares.
FCCB investors are usually hedge funds and foreign investors.
These bonds may also have a call option, whereby, the right of
early redemption lies with the bond issuer, or put option
whereby, the right of early redemption lies with bondholder.
FCCBS are generally issued by corporates in those currencies
which are stable and for which, the interest rates are lower.
The coupon payments on such bonds are lower than that on a
straight coupon-bearing plain vanilla bond, because of the
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attraction of conversion option. This reduces the cost for the
issuing company.
However, these bonds carry the risk of moves in the exchange
rates.
As the principal and the interest have to be paid in foreign
currency, an adverse movement in exchange rates can cause
cash outflows to be higher than the savings in interest rates.
In addition, issuing bonds in a foreign currency exposes the
issuer to any political, economic, and legal risks prevalent in
the country.
Also, if the bondholders do not convert their bonds to equity,
the issuer will have to make the principal repayments on
maturity.
The term of foreign currency convertible bonds, generally, is
around five years.
Holders of Foreign Currency Convertible Bonds are exposed to
exchange rate risk and credit risk.
If the issuing company goes bankrupt, the repayment of the
principal at maturity, will not be there.
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MEZZANINE FINANCING:
This is another hybrid type of debt and equity financing.
It gives the lender the right to convert the debt in to equity of
the company in case of default.
Mezzanine financing is normally for raising funds for specific
projects or to finance an acquisition.
Mezzanine financing can provide higher returns to investors
compared to normal debt instruments.
However, for the issuing company, its cost is lower than the
cost of equity capital therefore, it can be considered as very
expensive debt or cheaper equity.
Mezzanine debt is often an unsecured debt.
It may be structured with partially fixed and partially variable
interest rates.
It typically matures in more than 5 years. Depending on the
scheduled maturities of existing debt in the books of the
issuing company.
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INNOVATIVE HYBRIDS:
There can be a number of innovative hybrids.
In these cases, the formation of a hybrid security involves
different combinations of two distinct forms of securities: a
conventional debt or equity security and an over-the-counter
derivative (a forward contract, or swap, or option).
The following are some illustrations of distinct categories of
hybrids:
Hybrids as Convertible Bearer Form Bond:
A bearer forms convertible Eurobond amounting to of £64.25
million was issued by the British firm Carlton in the year 1992.
The subordinated issuance had a term of 15 years and paid a
coupon of 7.5%, which was at least two percentage points less
than comparable straight Eurobonds issued at the time.
Hybrids as a risk management strategy for commodities:
Standard Oil of Ohio Company was the issuer of the oil-linked
bond at the end of June in the year 1986.
The bond had a face value of $3,75,00,000 and comprised of
zero-coupon notes that would mature on March 15, 1992.
The bearer of each $1,000 note was guaranteed to receive
face value at maturity, in addition to an amount equal to the
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excess, if any, of the price of crude oil (West Texas
Intermediate) over $25 multiplied by 200 barrels.
This promise was made to the holder of each note.
The upper bound for the price of WTI was set at $40, which
meant that the highest amount an investor could receive at
maturity was ($40-$25) x 200, which equalled $3000, in
addition to the $1,000 par value of the security.
In addition, commencing on April 1, 1991, each note holder
had the opportunity to redeem their respective note prior to
its maturity on the first and fifteenth of each month, subject
to the terms outlined above.
To manage foreign exchange risks:
Bonds denominated in two different currencies:
Sperry Corporation, through a Delaware financing subsidiary,
issued a US $56 million dual currency bond in February, 1985.
The interest rate, payable annually in dollars, was 6 3/4%
(6.75%).
The principal, however, was equal to 100 million Swiss francs.
The final maturity was February, 1995.
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Hybrids to mitigate Interest rate Risk:
Collared Floating Rate Notes (FRNs):
The United Kingdom severed its ties to the European
Exchange Rate Mechanism in the fall of 1992, so liberating its
domestic monetary policy from the limitations imposed by its
previous connection to the Deutschemark.
The base rate, which is the most important short-term rate in
Britain, was decreased by the Bank of England from 7% to 6%
on Tuesday, January 26, 1993.
The first issue of collared floating-rate notes denominated in
sterling was spearheaded by Salomon Brothers in London on
the Thursday of that same week for 'The Leeds Permanent
Building Society' which issued the bond with a face value of
£100 million and a maturity of 10 years.
Investors were provided a flat LIBOR rate, with a minimum
interest rate of 7% and a maximum interest rate of 11% which
was seven and a half percentage points higher than the
prevailing London interbank offered rate for 6 months.
This is typical of the collared FRN structure, which at the time
had seen transactions totaling more than $8 billion done in
dollar-denominated form.
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ABFM MODULE - D
Chapter 19: HYBRID FINANCE (PART-III)

What we will study?

*What is Preference Share?
*What are the types of Preference Share?
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PREFERENCE SHARE CAPITAL:
Preference shareholders have a higher priority claim on both
the company's income and assets than the equity
shareholders have.
A dividend is guaranteed to preference shareholders, and this
dividend must be paid out before any dividends are
distributed to regular shareholders.
There may be cumulative or non-cumulative type of
preference shares.
The repercussions of failing to pay the dividend on preference
shares are not nearly as severe as those of failing to pay, for
example, the interest on a debt obligation.
Preference shareholders, in contrast to creditors, do not have
a legal claim to receive the dividend, which means that they
are unable to push the company into bankruptcy if they are
not paid.
However, in the event that the company is put into liquidation,
which involves the sale of all of its assets and the use of the
proceeds to settle all of its debts and pay off its owners, the
preference shareholders will receive everything that is
rightfully theirs before the equity shareholders receive
anything.
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This prior claim gives preference shareholders an edge in the
restructuring of companies that are either struggling
financially or have filed for bankruptcy, despite the fact that
few enterprises actually end up being liquidated.
The same organisations that assign ratings to corporate bond
offerings also assign ratings to issues of preference shares.
In India, we have several Credit Rating Agencies like CRISIL,
ICRA, CARE, Fitch etc., which are nationally recognized.
It is possible for there to be multiple classes of equity shares,
just as it is possible for there to be multiple classes of
preference shares, each having its own unique dividend rate
and set of rights.
Some classes of preference shares are considered junior to
other classes of preference shares.
When it comes to dividends and liquidation, owners of junior
classes of preference shares have to wait in line behind
owners of senior classes of preference shares.
Despite this, all preference shareholders have priority over
equity shareholders in terms of voting rights.
Preference shares, on the other hand, can be issued either
with or without a maturity date, in contrast to equity shares,
which is never issued with one.
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The term "perpetual or irredeemable preference shares"
refers to preference shares that do not have a maturity date.
Salient Provisions of the Companies Act, 2013:
In terms of provisions of Section 47 of company's act, where
the dividend in respect of a class of preference shares has not
been paid for a period of 2 years or more, such class of
preference shareholders shall have a right to vote on all the
resolutions placed before the company.
Section 55 of company's act is related to the issue and
redemption of preference shares.
1. No company limited by shares shall issue any preference
share which is irredeemable.
2. A company limited by shares may, if so authorized by it's
article of association, issue preference shares which are liable
to be redeemed within a period not exceeding 20 years from
the date of their issue.
3. A company may issue preference shares for a period
exceeding 20 years for infrastructure projects, subject to the
redemption of such % of shares as may be prescribed on an
annual basis at the option of such preferential shareholders.
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Types of Preference Shares:
The various kinds of preference shares that can be issued are
as follows:
Cumulative Preference Shares:
A cumulative preference share is one that holds the right to a
definite sum of dividend or dividend at a predetermined rate.
These shares are more valuable than regular preference
shares.
The name "Cumulative Preference Shares" comes from the
fact that the dividend on these shares will continue to
accumulate unless they are completely paid out.
Till payment is done, the unpaid dividends are recorded as a
contingent liability in the company's balance sheet.
As mentioned above, in the event that the dividend is delayed
for a period of at least two years, the holders of such shares
shall be granted the right to participate in and vote on every
resolution and every item brought before the general body
meeting of the shareholders.
Non-Cumulative Preference Shares:
A non-cumulative preference share grants the holder the right
to receive a dividend payment that is predetermined in
advance.
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If for some reason a dividend is not declared throughout the
course of a given year, the right to receive that dividend for
that year will be forfeited.
As a consequence of this, the owner of such a share will never
be eligible to receive dividends in arrears in the future.
Participating Preference Shares:
In addition to the right to a fixed dividend, these shares give
the holder the right to participate in any surplus profits that
remain after equity shareholders have been paid dividends at
a predetermined rate.
This right is granted regardless of whether or not the fixed
dividend is paid out.
Additionally, in the event that the company is wound up, the
holder of this type of share is entitled to receive a
predetermined amount of the surplus as well, but only after
the equity shareholders have been compensated in full.
Non-Participating Preference Shares:
A non-participating preference share is a share that only
receives a predetermined rate of dividend payment each year
and does not get any additional rights in profits or in the
surplus when the company is wound up.
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Redeemable Preference Shares:
These shares are issued on the condition that the company
will redeem them after the specified period or even earlier at
the company's option.
A call option may also be incorporated in this type of shares,
giving the company the right to redeem at a specified time
and rate.
Non-Redeemable Preference Shares:
The preference shares that do not come with an arrangement
regarding redemption, are referred to as Non-Redeemable
Preference Shares.
Irredeemable preference shares can be redeemed by a
company only on liquidation or shutting down of operations.
However, Indian companies are not permitted to issue
irredeemable preference shares.
Convertible Preference Shares:
The holders of these shares have the right to have them
converted into equity shares, at their discretion, in accordance
with the terms and circumstances of the issue of which they
are a part.
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Non-Convertible Preference Shares:
A non-convertible preference share is one in which the owner
of the preference share does not have the right to have his
holdings converted into equity shares.
Adjustable-rate Preference Shares:
Adjustable-rate preference shares do not qualify for a fixed
dividend rate.
The dividend pay-outs depend on the interest rates prevalent
in the market.
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ABFM MODULE - D
Chapter 19: HYBRID FINANCE (PART-IV)

What we will study?

*What is the purpose of issuing preference share?
*What are Perpetual Non-Cumulative Preference Share
(PNCPS)?
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Purpose of issuing Preference Shares:
The following are some of the reasons why preference shares
may be issued:
a) It is an improved method for acquiring capital in primary
market.
b) If a firm's shares can't be bought and sold, it might have
trouble obtaining funds, but the possibility of getting one's
money back at some point in the future could entice investors
to invest in the company.
c) In most cases, the preference shares are redeemed when
there is a surplus of cash and there are no other successful
ventures in which to invest the money.
d) If there is a loss or a reduction in profit, there will be no
dividend paid out, which is not the case with debentures or
loans.
There was a time when preference capital was not a popular
method of capitalisation because it neither offered much
gains associated with capital markets to investors nor did it
provide the tax advantage to the companies which were
available in case of interest paid on debentures.
The investor interest in preference capital keeps fluctuating
with the change in taxation laws.
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Preference dividend, which was exempt from taxation in the
hands of investors is once again taxable in the hands of the
investor.
Therefore, investors' willingness to accept a lower rate of
dividend on preference capital, which was resulting in a lower
cost of preference capital for the companies that were issuing
it, is again at a low ebb.
However, for a company that has more or less reached its
limit on the amount of debt it can take on, and is hesitant to
release equity capital, this strategy seemed to make an
incredible amount of sense and may still yield results for
companies with good track record and which are willing to
offer preference dividend at a rate higher than the fixed
deposit.
A charge, such as a mortgage or hypothecation, is not
necessary in order to issue preference shares.
It is possible to immediately issue preference shares for the
purpose of obtaining cash for the medium term, with flexible
maturity periods.
Redemption of Preference Shares:
Redemption (maturity) refers to the process of repaying an
obligation at predetermined times and amounts over the
course of its existence.
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It is a contract that gives the holder the right to redeem
preference shares at an agreed upon price either at the
conclusion of a specific time period or before the end of that
time period.
The redemption date, also known as the maturity date, is
typically printed on the share certificate, and it indicates the
day on which the repayment of the debt is planned to take
place.
These shares are issued on the terms and conditions that the
shareholders will be refunded the money invested by them in
addition to the dividend that they get over the tenure of
preference shares.
Methods of Redemption of Fully Paid-Up Preference Shares:
Section 55 of the Companies Act 2013, deals with provisions
relating to redemption of preference shares.
It ensures that there is no reduction in shareholder's funds
due to redemption.
Therefore, it either issues fresh shares or distributable profits
are retained and transferred to Capital Redemption Reserve
Account.
In case of redemption through fresh issue, the shareholder
fund is kept intact directly while in case of distributable
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profits being retained and transferred to Capital Redemption
Reserve Account, the same is kept intact indirectly.
If distributable profits being retained then in this case, the
amount which would have gone to shareholders in the form
of dividend is retained in the business and is used for settling
the claim of preference shareholders.
The transfer of divisible profits to Capital redemption Reserve
account makes them non-divisible profits.
As balance in Capital redemption reserve account can only be
used for issue of bonus shares and hence the shareholder
funds come back to same amount as before redemption.

Perpetual Non-Cumulative Preference Shares (PNCPS):

This type of Preference Shares is issued by Indian banks as
part of Additional Tier 1 Capital, subject to extant legal
provisions, only in Indian rupees and should meet the
following terms and conditions to qualify for inclusion in
Additional Tier 1 Capital for capital adequacy purposes:
1. The instruments should be issued by the bank (not a bank-
created SPV) and fully paid up.
2. Bank boards may decide how much PNCPS to raise.
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3. Perpetual Non-Cumulative Preference Shares (PNCPS) in
Additional Tier 1 Capital cannot exceed 1.5% of risk-weighted
assets (RWA).
Once this minimum total Tier 1 capital is met, any additional
PNCPS issued by the bank can be added.
Excess PNCPS can be considered Tier 2 capital if less than 2%
of RWAs, while meeting minimum Total Capital of 9% of RWAs.
4. The PNCPS have no maturity date, step-ups, or other
redemption incentives.
5. Investor dividends may be fixed or floating, based on a
market-determined rupee interest benchmark rate.
6. PNCPS shouldn't have a "put option". However, banks may
issue instruments with a call option at a specific date.
a) The call option on the instrument is acceptable after it has
run for at least five years.
b) To exercise a call option, a bank must have RBI
(Department of Regulation) clearance.
c) A bank must not do anything that generates an expectation
that the call option will be exercised. The dividend/coupon
reset date need not be co-terminus with the call date to avoid
such expectations. Banks may, at their discretion, consider a
gap between dividend/coupon reset date and call date.
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d) Banks must not exercise a call unless:
i) They replace the called instrument with capital of the same
or better quality at conditions sustainable for the bank's
income capacity or
ii) The bank demonstrates that its capital position is well
above the minimum capital requirements after the call.
Exercise of calls due to tax event and regulatory event may be
permitted.
7. Principal of the instruments may be repaid (e.g., through
purchase or redemption) only with prior approval of RBI.
8. The bank must have full discretion at all times to cancel
distributions/payments. Dividends can neither be cumulative
nor have a credit sensitive coupon feature.
9. Neither the bank nor a related party should purchase
PNCPS, nor should the bank directly or indirectly fund the
purchase. Banks should also not grant advances against their
PNCPS.
10. The claims of investors in instruments shall be:
(a) Superior to the claims of equity investors.
(b) Subordinated to the claims of Perpetual Debt Instruments
(PDIs), all Tier 2 regulatory capital instruments, depositors,
and general creditors of the bank and
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11. FIls and NRIs may invest up to 49% and 24% of the issue,
respectively, with each investor limited to 10% and 5%.
FIIs: Total 49% (each investor limit 10%)
NRIs: Total 24% (each investor limit 5%)
Redemption of Preference Shares by Fresh Issue of Shares:
A company can use the proceeds from fresh issue of shares to
redeem preference shares.
A problem arises when a fresh issue of shares is made at a
premium and premium amount goes to securities premium
account.
For securities premium account, Section 52 of the companies
Act, 2013 provides that the securities premium account may
be applied by the company:
1. Towards issue of un-issued shares of the company to be
issued to members of the company as fully paid bonus
securities.
2. To write off preliminary expenses of the company.
3. To write off the expenses of, or commission paid, or
discount allowed on any of the securities or debentures of the
company.
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4. To provide for premium on redemption of preference
shares or debentures of the company.
5. For the purchase of its own shares or securities.
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ABFM MODULE - D
Chapter 19: HYBRID FINANCE (PART-V)

What we will study?

*All about Black Scholes Model?
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VALUATION OF WARRANTS:
The methods that are used to value options can be used to
warrants because a warrant is comparable to a call option on
the equity stock of the corporation that is issuing the warrant.
The maximum value that a warrant can have is determined by
taking the current stock price and subtracting the exercise
price from it.
The stock price itself determines the maximum value that a
warrant can have.
The warrant price lies within the parameters established by
the lower limit and the upper limit.
The following variables have an effect on the gap that exists
between the current market price of the warrant and its
minimum acceptable level:
1. The fluctuation in the prices of the stocks.
[Link] time before expiration.
3. Risk Free interest rate.
4. The Value of the Stock.
5. Exercise Price.
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Applying the Black Scholes Model:
If one is willing to disregard the complexities brought about
by dividends and dilution, it is possible to assess the value of a
warrant by following this (Black Scholes) approach.
Black Scholes model is used for valuation of options.
As warrant is like a call option, this model can be used for its
valuation also.
This model takes into consideration five variables viz.,
volatility, underlying stock price, time, strike price, and risk-
free interest rate.
Consider the following information regarding Company X to
help show how the calculation works:
Current stock price = 𝐒𝐨 = Rs. 125
Total Number of warrants issued = 1.6 lakh.
Exercise Price = E = Rs. 100
Time to expiration of warrants (t)= 6 months (0.5 year),
represented by t.
Annual Standard Deviation of Stock Price Changes (σ) = 0.4,
represented by σ.
Risk free Interest Rate = 8%, represented by r = 0.08.
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N is Cumulative Distribution Function of the standard normal
distribution. It represents a standard normal distribution with
mean = 0 and standard deviation = 1
Applying the Black Scholes model involves four steps:
𝐄
Current price (𝐂𝐨 ) = 𝐒𝐨 N(d₁) — N(d₂)
𝐞𝐫𝐭

First Step: Calculate 𝐝𝟏 and 𝐝𝟐

𝐒𝟎 𝛔𝟐
𝐥𝐨𝐠 𝐧 ( ) +(𝐫+ )𝐭
𝐄 𝟐
d1 =
𝛔√𝐭
𝟏𝟐𝟓 𝟎.𝟏𝟔
𝐥𝐨𝐠 𝐧 ( )+ (𝟎.𝟎𝟖+ )∗𝟎.𝟓 𝟎.𝟐𝟐𝟑𝟏+𝟎.𝟎𝟖
𝟏𝟎𝟎 𝟐
d1 = = = 1.0718
𝟎.𝟒√𝟎.𝟓 𝟎.𝟐𝟖𝟐𝟖

𝒅𝟐 = 𝒅𝟏 - 𝝈√𝒕 = 1.0718 - 0.2828 = 0.7890

Second Step:
Find N(d₁) and N(d₂):
N(d₁) and N(d₂) represent the probabilities that a random
variable, that has a standardised normal distribution, will
assume values d₁ and d₂.
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These values can be obtained from the Probability Tables,
readily available on internet.
N(d₁) = N (1.0718) = 0.8582
N(d₂) = N (0.7890) = 0.7849

Third Step: Estimating the present value of the exercise price,

using the continuous discounting principal:
𝐄 𝟏𝟎𝟎 𝟏𝟎𝟎 𝟏𝟎𝟎
= = = = Rs. 96.08
𝒆𝒓𝒕 𝒆𝟎.𝟎𝟖∗𝟎.𝟓 𝒆𝟎.𝟎𝟒 𝟏.𝟎𝟒𝟎𝟖

Fourth Step:
Plug the numbers, obtained above, in the Black Scholes
Formula:
𝐄
Current price (𝐂𝐨 ) = 𝐒𝐨 N(d₁) — N (d₂)
𝐞𝐫𝐭
= 125 * 0.8582 – 96.08 * 0.7849 = 107.27 -75.41
= Rs. 31.86
*Excel makes it relatively simple to apply each of these
formulas for calculating option prices.
*The functions [Link], EXP and LN have been used for
computing the values in the above illustration and the dilution
effect has not been considered.
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ABFM MODULE - D
Chapter 20: STARTUP FINANCE (PART-I)
What we will study?
*What is Startup Finance?
*What are the benefits to startups under startup India plan?
*What is Startup?
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INTRODUCTION:
Startup refers to a business that is just getting started.
Startups are created by one or more business owners who
desire to provide a good or service, they feel there is a market
for.
These businesses typically have large startup expenses and
little income, which is why they seek funding from a number
of sources including venture capitalists.
Wikipedia defines 'a startup or start-up as a company or
project undertaken by an entrepreneur to seek, develop, and
validate a scalable business model.
While entrepreneurship refers to all new businesses including
self-employment and businesses that never intend to go
public, startups are new businesses that intend to grow large
beyond the solo founder.
At the beginning, startups face high uncertainty and have high
rates of failure, but a minority of them do go on to be
successful and influential.
Under the Department for Promotion of Industry and Internal
Trade (DPIIT), Startup India was established to effectively
handle the incentive disbursement process for new businesses.
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The idea is to entice investments as well as to create an
ecosystem that helps businesses develop.
The Startup India Hub, an online portal, that offers a variety of
services under Startup India, and connects aspirants to other
significant ecosystem builders, launched the project in April
2016.
Additionally, the scope of the term was expanded to
encompass scalable businesses with a high potential for
creating money or jobs.
Additionally, the need for a letter of recommendation from an
incubator or industry group was dropped in order to profit
from the projects.
Stakeholders were given a totally online forum with the start
of the recognition project under Startup India.
All applications are gathered, reviewed, and granted
certificates of recognition for complete and qualified
applications within 48-72 working hours on this platform.
The DPIIT recognition procedure enhanced the ecosystem as a
whole and permitted entrepreneurs to participate in
numerous support programmes offered by Startup India.
The Indian government wanted to tap into and develop its
citizens' entrepreneurial potential.
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The goal was to inspire India's creative genius to conjure up
ideas, act on them, and turn them into profitable ventures.
In order to achieve this goal, the government introduced the
"Startup India" initiative in January 2016.
The program's goal is to create a strong environment for
fostering innovation and startups in the nation which will
promote long-term economic growth and provide countless
job possibilities.
On January 16, 2016, a “Startup India Action Plan" was
unveiled in order to include all these goals under a single
overarching policy framework for the entire country while
taking into account all facets of the startup ecosystem.
It included 19 recommendations for actions that fell into three
categories:
financial assistance and incentives, industry-academia
collaboration, and simplification and coercion.
Each of the States and UTS currently has at least one
recognised startup.
The Department for Promotion of Industry and Internal Trade
(DPIIT) has recognised 69636 businesses nationwide as part of
the Startup India Program through April 2022, with Delhi and
Karnataka having the highest totals.
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According to the Economic Survey 2021-22, at least 14000
startups were recognised during the fiscal year 2022.
The report also noted that 555 districts in India have at least
one new company, drawing attention to the fact that over the
previous 6 years, startup activity in India has expanded
significantly, with the majority of them being in the IT and
knowledge-based sectors.
In India, startups have increased significantly during the past 6
years.
The survey found that from just 733 in 2016-17, there will be
almost 14,000 new recognised companies in 2021-22. After
the United States and China, India now has the third-largest
startup ecosystem globally.
According to the data, 44 firms in India achieved unicorn
status in 2021, bringing the total number of unicorn startups
to 83, with the service sector accounting for the majority.
The report shed light on new-age company IPOs as well.
In comparison to previous years, Rs. 89,066 crore was raised
through 75 IPOs issuance between April and November 2021.
According to the poll, there will be 47 companies in India's
startup sector in 2021, up from 11 in 2019.
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Through January 2022, 130 agreements totaling up to $3.5
billion were invested in by India Startups.
The total contract value in January 2022 is 6 times greater
than it was in the same month the previous year, which
included 75 deals at $600 million.
Among the main industries, where start-ups are registered,
are those in the food processing, application development,
product development, and IT consulting sectors.
There are more than 1000 recognised startups in each of the
12 States and UTs (Maharashtra, Delhi, Karnataka, Uttar
Pradesh, Telangana, Gujarat, Haryana, Tamil Nadu, Kerala,
Rajasthan, Madhya Pradesh, and West Bengal).

BENEFITS TO STARTUP UNDER THE STARTUP PLAN:

Startups are eligible for a range of benefits under this strategy,
including tax incentives, government funding support, capital
gain tax exemptions, priority treatment for startups in public
procurement, etc.
The ability to self-certify in relation to nine labour regulations
and three environmental laws is another benefit, as is a 3-5
years exclusion from any business inspections.
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On a written, verifiable allegation of a breach, accepted by at
least one level above the inspecting officer, startups may be
inspected.
Other significant provisions of the action plan were access to
an 80% fee discount for patent registration and a 50% fee
rebate for trademark filing.
Additionally, it offers the option of faster exit regulations and
no-cost support from facilitators of patent and trademark
applications.
To encourage an innovative and entrepreneurial culture, it has
also developed the Atal Innovation Mission with Self-
employment and Talent Utilization (SETU) programme.
Its purpose is to act as a platform for the promotion of startup
companies, world-class innovation hubs, and other self-
employment endeavours in technologically advanced fields.
Incubator setup expertise from the private sector is another
goal of this initiative.
Institutions called, business incubators, help entrepreneurs
build their businesses, particularly in the beginning.
These businesses are targeted toward accelerating the
development and success of startup and early-stage
businesses.
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Atal Tinkering Labs will be constructed in a number of schools
across the country, and these schools have been chosen.
The Atal Innovation Mission has chosen incubators all
throughout the country to which it will provide financial
support in the form of grants-in-aid.

STARTUP DEFINITION IN INDIA:

Initial Definition:
An entity shall be considered a startup:
Up to 5 years from the date of its incorporation/registration
If its turnover for any of the financial year has not exceeded
Rs. 25 crores.
If it is working towards innovation, development, deployment
or commercialization of new products, processes or services
driven by technology or intellectual property.
Provided that any such entity formed by splitting up or
reconstruction of a business, already in existence, shall not be
considered a "Startup".
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Expanded Startup Definition:
Under the Startup India Action Plan, An entity shall be
considered a startup:
If it is incorporated as a private limited company (as defined in
the Companies Act 2013) or registered as a partnership firm
(registered under Section 59 of the Partnership Act 1932) or a
limited Liability partnership (under the Limited Liability
Partnership Act, 2008) in India, and Up to 10 years from the
date of its incorporation/registration.
If its turnover for any of the Financial Year since
Incorporation/registration has not exceeded 100 crore and
It is working towards innovation, improvement or
development of products or processes of services or if it is a
scalable business with a high potential of employment
generation or wealth creation.
Provided that any such entity formed by splitting up or
reconstruction of a business already in existence shall not be
considered as a startup.
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ABFM MODULE - D
Chapter 20: STARTUP FINANCE (PART-II)

What we will study?

*What are the challenges faced by startups?
*All about State Startup Policy?
*What is Pitch Presentation?
*What are the programs for startups?
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CHALLENGES FACED BY STARTUPS:
The main challenges, faced by startups, may be listed as under:
➢ Failure to plan appropriately.
➢ Unrealistic Expectations.
➢ Knowledge and skills gaps.
➢ Time management and productivity.
➢ Lack of Leadership.
➢ Fierce Competition, lack of demand, and Ineffective
marketing.
➢ Winning Trust of Customers.
➢ Hiring Suitable Candidates.
➢ Partnership Decision Making.
➢ Financial Management.
➢ Securing funding.
➢ Cyber Security.
STATE STARTUP POLICY:
It is important for a state to have a startup policy because it
provides crucial funding, mentorship, and market access
support that is required by startups in order for them to grow
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into significant contributors to the economy of the state in
terms of revenue and job creation.
It also includes provisions to provide incentives to key startup
stakeholders such as incubators and institutions of higher
education, amongst others, in order to encourage the
accumulated development of India's startup ecosystem.
The Startup India Team is committed to actively assisting
individual states in the formulation and implementation of
their respective startup policies.
Currently, 31 states (including UTs) out of a total of 36 have
their own startup policy.
Following the introduction of the Startup India Initiative in the
year 2016, a total of 26 of these startup policies were drafted.
There is at least one startup that has been recognised by the
DPIIT operating in each of the 36 states and Union Territories.
Each of the 623 districts has acknowledged at least one
startup that has been recognised by the DPIIT.
PITCH PRESENTATION:
The pitch presentation is a slide presentation usually using
either Power point or Keynote Slides in the background, that
helps the entrepreneur to showcase its business and provide
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the reasons for which an investor should invest into the
business.
The pitch presentation came into picture in the late 1990s,
during the dotcom boom.
The entrepreneur should focus on the following, while
preparing slides for pitch presentation:
➢ The Problem Statement i.e. The issues faced by
business/society.
➢ Solutions to solve the issue.
➢ Business Model.
➢ The Technology used.
➢ Business and Commercial Activity.
➢ The Competitive Environment.
➢ The Team Composition.
➢ Predictions and Significant Events.
➢ Present Status and Timelines for Execution.
➢ Executive Summary and call for action.
The presentation of the pitch should be clear and concise, and
it should emphasise the most significant aspects of the
enterprise, rather than all of the intricacies.
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It should answer the maximum questions that an investor
might have while investing in the venture and should be
flexible depending on the type of venture for which the
entrepreneur is looking for investment.
In addition, it should address any concerns that the investor
might have regarding the venture.
PitchDeck is an all-in-all presentation building platform
exclusively for start-ups, offered by Startup India.
The platform focusses primarily on helping users build their
first pitchdeck from scratch with next to zero design effort.

PROGRAMMES AND COMPETITIONS FOR STARTUPS:

Incubator Grand Challenge:
As part of the Atal Innovation Mission's Established
Incubation Centres (EIC) programme, the Incubator Grand
Challenge has been introduced as a means of recognising
incubators.
To date, Rs. 54.65 crore has been distributed to 9 different
incubators through AIM's Grants-in-Aid programme.
As of May 2021, AIM had selected 16 incubators from around
the country for the purpose of providing financial support.
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These Incubators will each receive a financial support of Rs. 10
crores, which can be used to improve the overall quality of the
services that are given.
Startup India Yatra:
The Startup India Yatra programme was started with the
intention of travelling across Tier 2 and Tier 3 cities in India in
search of entrepreneurial talent and with the intention of
assisting in the expansion of the startup ecosystem.
Its primary objective is to identify prospective business
owners living in non-metropolitan areas and provide them
with a venue in which they can pursue their dreams of
running their won companies.
This will be accomplished by providing them with business
incubation and mentoring from well-known institutions in
order to assist them in overcoming the constraints posed by
the dearth resources in their region.
The objective of the Startup India Yatra is to visit every single
district in country.
The following is a list of the important elements that are
included in Startup India Yatra:
➢ The mobile van for the Startup India travels across the
states and records ideas.
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➢ The Startup Yatra has been carried out in 23 states and
220 districts, having an effect on about 7,80,000 people
interested in starting their own businesses.
➢ A total of approximately 1,450 opportunities for
entrepreneurs to participate in an incubator programme
have been made available.
➢ Throughout the course of the day, a boot camp will be
held, which will include idea validation, awareness
workshops, and pitching sessions.

Rule 170(1) of GFR 2017:

There is an exemption from the requirement to submit an
earnest money deposit or bid security in public procurement
bids, as stated in Rule 170(1) of GFR 2017, which was updated
in 2017. (GFR: General Financial Rules)
Rule 173 was notified vide GFR 2017 in order to relieve the
condition of past turnover and prior experience for DPIIT
recognized startups in all proposals for government tenders.
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The Insolvency and Bankruptcy Code 2016 (IBC 2016):
The Insolvency and Bankruptcy legislation of 2016 provides a
framework for the expeditious resolution of insolvency cases
involving corporate persons, partnership firms, and individual
debtors.
The Ministry of Corporate Affairs has notified startups that
they are "Fast Track Firms," which will allow them to wind up
their activities within 90 days rather than the 180 days that
are required for regular enterprises.
According to the terms of the IBC, start-up companies that
have simple debt structures or that meet such conditions as
may be specified, must have their operations wound down
within 90 days after making an application for winding down
on a fast track basis.
In the event that this occurs, an insolvency professional will
be arranged for the startup.
This individual will be in charge of the company (the
promoters and the management will not be permitted to run
the business) for the purpose of liquidating its assets and
paying its creditors within 6 months of the appointment of the
insolvency professional.
After being appointed, the insolvency professional is
responsible for the prompt closure of the company, the sale of
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assets, and the reimbursement of creditors in line with the
distribution rules established by the IBC.
INSPIRE:
INSPIRE or INSPIRE Manak is "Innovation in Science Pursuit for
Inspired Research", which is being run by the Department of
Science and Technology (DST) in collaboration with the
National Innovation Foundation-India (NIF), an autonomous
body of the DST.
The objective of the Awards is to encourage and inspire young
people between the who are currently enrolled in classes 6
to 10.
The program’s objective is to foster an environment that
encourages youngsters to think creatively and innovatively by
celebrating the planting of one million unique ideas and
innovations in the fields of science and societal applications.
From the approximately 3.2 million nominations that were
received from schools, around 50,000 of the best ideas were
chosen to earn a grant of Rs. 10,000/- each to be used toward
the production of a project model and participation in a
district-level exhibition and project competition.
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National Startup Award:
National Startup Award was initiated in 2021.
The purpose of this award is to recognise and reward
excellent startups and ecosystem enablers that are
contributing to the economic ecosystem by stimulating
innovation and injecting competition.
This award is in the quest to recognise and reward excellent
startups and ecosystem enablers.
Startups that are developing ground-breaking technologies or
solutions, businesses that are scalable and have a good
chance of creating jobs or riches, and ventures that are having
a measurable positive effect on society are examples of good
candidates.
The award show is broken up into different categories, some
of which are as follows: providing India with innovative
solutions to real problems and challenges; developing
innovative technologies, solutions and products from India to
the rest of the world; building businesses that are scalable,
sustainable, and responsible; and delivering measurable
development gains.
The winning startups in the competition received monetary
prizes in addition to support from the government.
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ABFM MODULE - D
Chapter 20: STARTUP FINANCE (PART-III)

What we will study?

*What are the programs for startups (continued)?

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Women Capacity Development Programme (WING):
The Women Capacity Development programme, often known
as WING, offers training and a platform for women-led
businesses as part of its capacity development efforts.
This is done with the goal of increasing awareness of the
project.
As of May 2021, a total of 21 capacity development
workshops had been carried out in 9 different states, with
more than 1150 female business owners receiving benefits.
Communications for Female Entrepreneurs, backed by
Lending and Venture Funding from SIDBI Institutions are
arranged by accepting applications on the "Startup India
Hub," and shortlisted women entrepreneurs are asked, after a
process of screening by experts, to meet with these
institutions for both equity and debt finance.
On the website known as Startup India Hub, one may now
find a page specifically devoted to female business owners.
GEM Startup Runway:
GEM entrepreneurial runway has introduced a designated
area for startups to set up shop and sell their wares.
Swayatt, which stands for "Startups, women and Youth
Advantage through e-transactions" is the name of a startup
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runway that was recently introduced on the government E
market (GeM) place by the Ministry of Commerce and
Industry in an effort to entice more startups to participate in
the Government E Market place.
Through the Starting Runway Corner, participants in the
programme will have the opportunity to engage with
government purchasers and market their products and
services as part of their startup businesses.
On the other hand, the listing will only be open to companies
who have been certified by the Department of promotion for
Industry and Internal Trade (DPIIT).
Innovation Zones:
The government is establishing Innovation Zones at the level
of Urban Local Bodies (ULBs) in order to enhance the basic
level of public service delivery and governance.
This is done in order to improve the overall quality of life for
citizens and to handle local problems in the areas of sanitation,
cleanliness, health, trash, water, taxation, traffic, enforcement,
and any other facets of citizen services supplied by ULBs.
The following functions will be assigned to innovation zones:
➢ Recognize significant challenges and research needs
linked to all elements of citizen services with the goal of
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improving the quality of life of citizens; this will be done
with the intention of improving the overall quality of life.
➢ Investigate novel approaches to resolving these kinds of
problems through the use of grand challenges,
hackathons, problem-specific pitching sessions, reverse
pitching sessions, and any other method you can think of.
States Startup Ranking:
The States Startup Ranking was established in April 2017 with
the intention of harnessing the force of competitive unionism
and fostering the growth of a thriving startup ecosystem
across the nation.
The primary purpose of this study is to assess the states and
territories with regard to certain intervention areas that are
crucial to the development of a healthy ecosystem.
Additionally, a States Ranking Framework has been
established as part of the strategy.
This framework raises awareness regarding the volume and
scope of state-driven initiatives and encourages reciprocal
learning among ecosystem players.
The ranking framework is based on seven reform areas that
are essential to the expansion of startup ecosystems.
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These are access to markets, support for incubation, support
from institutions, support for fostering innovation and
entrepreneurship, support for funding, support for capacity
building of enablers, and support for mentoring.
Digital Demo Day:
The Digital Demo Day is a conference and display for new
technology companies who are just getting started in
Germany.
It provides a platform for industrial tech startups, primarily in
the fields of virtual reality (VR), augmented reality (AR),
internet of things (IoT), cyber security, smart devices, drones,
and robotics, to showcase their digital technologies for people
to test out and get in touch with.
It honors inventiveness by bringing together colleges,
corporations, small and medium-sized businesses, and
startups, all of which are searching for chances in digital
transformation.
Ayushman PMJAY Startup Grand Challenge:
In cooperation with Startup India, the Ayushman PMJAY
(Pradhan Mantri Jan Arogya Yojana) Startup Grand Challenge
is extending an invitation to India's newest businesses to
develop innovative solutions for the National Health Authority
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Support for Ayushman Bharat Jan Arogya Yojana's efficient
Implementation.
The challenge consists of inviting startups that are primarily
working in the fields of medical devices, digital health,
hospital services, hospital management, health
communication, medical workforce training and capacity
building and reducing the cost of operations, amongst other
fields.

Textile Grand Challenge:

The initiative resulted in the beginning of the Textile Grand
Challenge.
India is a significant participant in the global textile and
clothing manufacturing industry.
It is anticipated that by the year 2025, the global market for
garments made from textiles will reach $ 1.3 trillion.
In a similar vein, it is anticipated that the domestic market for
garments will reach 59.3 billion dollars by the year 2022.
The primary objective is to introduce innovation into the
sector of concern, which will, in the long run, contribute to the
industry's expansion.
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Innovation Challenge:
An Innovation Challenge was launched with the goal of
developing a Portable Device for Water Quality Testing.
This innovation challenge was launched by the Department of
Drinking Water and Sanitation's National Jal Jeevan Mission
(NJJM) in collaboration with the Department of Drinking
Water and Information Technology.
Both surface water and groundwater are used as sources of
potable water in rural regions, with ground water accounting
for 80% of the total.
However, because there is a limited amount of groundwater
available, particularly in dry and semi-arid regions, there has
been an increase in the consumption of surface water.
People who have their water supplied to them through pipes
at their homes are unable to verify the potability of the water
that comes out of their taps, which is why many people are
reluctant to drink water directly from the faucet.
People living in urban areas typically install household water
treatment units, which results in additional costs.
There is a need for "Portable Water quality testing Devices"
that can test the water quality for critical factors.
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ABFM MODULE - D
Chapter 20: STARTUP FINANCE (PART-IV)

What we will study?

*What are the programs for startups (continued...)?
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MNRE Startup Grand Challenge:
An Ministry of New and Renewable Energy (MNRE) startup
grand challenge has been kicked off to achieve the goal of
lowering carbon emissions while also ensuring energy security
and access.
The possibilities that are now available aim to investigate the
potential for bigger contributions from renewable resources in
the fields of livelihood, health, water, and innovation in
products, services, and business models.
The MNRE offers a one-of-a-kind opportunity for innovative
businesses and entrepreneurs to solve some of the most
pressing problems that the Renewable Energy Sector in India
is now facing.
Startup India Single Use Plastic International Challenge:
Because single-use plastics, also known as disposable plastics,
are only used a single time before being thrown away or
recycled, government of India has created the Startup India
Single use plastic International Challenge in order to
encourage inventors and startups to develop design solutions.
To help reduce the amount of single-use plastic used in the
food and beverage industry, The SUP Challenge-Goa is calling
for the participation of innovative startup companies.
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Grants will be provided to the selected startups so that they
can pilot their solutions with Food & Beverage (F&B) Partner
in Goa.
There was a total of eight Entrepreneur Support Organizations
(ESOS) that were considered for the role of running the SUP
Challenge with the F&B Partner in the five nations of India,
the Philippines, Thailand, Vietnam, and Indonesia.
The following areas will receive particular attention as a result
of this challenge:
*Reverse Logistics.
*Circular Reuse/Refill models.
*Alternatives to Plastics Intended for Single-Use Only.
The following benefits will be made available through the
programme:
*Individualized guidance from seasoned professionals in the
sector.
*Grant funding for 10 pilots.
*An exhibition of the impact of successful pilot projects.
*Occasions to Establish Professional Contacts.
*Seminars and online presentations.
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Research Park:
As of May,2021, the following eight new research parks had
been established:
*IIT Delhi
*IIT Kanpur
*IIT Gandhinagar
*IIT Mumbai
*IIT Guwahati
*IIT Kharagpur
*IIT Hyderabad
*IIsc Banglore
Single Point Registration Scheme:
The Ministry of Micro, Small, and Medium Enterprises (MSME)
has initiated a scheme known as Single point Registration.
The Indian Government is the single biggest buyer of a wide
variety of products.
The Government Stores Purchase Programme was initiated in
1955-1956 with the purpose of increasing the proportion of
purchases made from the micro- and small-scale business
sectors.
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The Micro and Small Enterprises who wish to participate in
Government Purchases must first become registered with
NSIC under the Single Point Registration Scheme (SPRS).
Under the Single Point Registration Scheme, the National
Small Industries Corporation (NSIC) is willing to register any
micro and small businesses that have an Udyog Aadhar
Memorandum (UAM) or an EM Part - II (Optional).
EM Part - II: Entrepreneurs Memorandum Part - II
Those micro and small businesses who have begun
commercial production but have not yet reached their one-
year anniversary of operation are the ones that are qualified
to be registered under this programme.
The registration certificate that is awarded to Micro and Small
Enterprises as part of the Single Point Registration Scheme is
valid for a period of 2 years, after which it will be subject to
review and must be renewed.
This review and renewal will be determined by an evaluation
of the Registered Micro and Small Enterprise's continuous
Commercial and Technical Competence in manufacturing or
producing.
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Micro and small enterprises that fall under the Single Point
Registration umbrella and have a maximum annual revenue of
Rs. 5 lacs are eligible to receive a Provisional Registration
certificate.
This certificate is valid for 1 year and can be used by
businesses that have already begun commercial production
but have not yet reached their first anniversary in business.
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ABFM MODULE - D
Chapter 20: STARTUP FINANCE (PART-V)

What we will study?

*What are the different types of Startup finance?
*What are the different Stages of Startup and source of
finance?
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Types of Startup Financing:
Debt Financing:
It entails borrowing money from a lender, paying that money
back with interest within a predetermined amount of time,
and adhering to the deadlines that have been established for
the payback of the loan.
The lender does not have any influence over the company,
and in order to secure financing, the fledgling company can be
required to submit some form of collateral.
It is possible to get it through banking institutions, non-
banking financial institutions, government loan programmes,
and other similar avenues.
Equity Financing:
It comprises selling equity shares of the company in exchange
for the capital that was provided.
In the case of equity financing, there is no requirement to
make any payments toward the principal.
However, startups are required to share ownership in the
company, even though they are not required to offer
collateral for the same.
In most cases, equity investors are given the authority to
make decisions within the organisation.
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It is possible to acquire it through angel investors, venture
capitalists, crowd funding incubators and accelerators, as well
as from one's own family and friends through self-financing.
Grant:
A grant is an incentive, typically financial, that is granted by
one organisation to another organisation in order to promote
the achievement of a goal or to encourage superior
performance.
A grant does not call for any sort of payback of the monies.
The disbursement of grants occurs in stages, with each one
contingent on the previous one having been successfully
completed.
In the case of a grant, the investor will not receive any return
on their investment.
In most cases, grants can be obtained from the Central
Government, the State Government, Corporate Challenges, or
grant programmes run by private entities.
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Stages of Startups and Sources of Funding:
There are many different funding options available for new
businesses.
Nevertheless, the origin of the funding ought to normally
correlate with the stage of operation that the startup is now
in.
The following is an outline of the various stages:
Idea Phase:
At this point, the entrepreneur has the business concept in
their head and is working to turn it become a reality.
At this point in the process, the quantity of money that is
required is relatively low.
In addition, when a business is in its early stages of operation,
there are very few avenues and sources via which cash can be
raised and financed.
At this point in time, most of the money that is needed to be
raised can come from unofficial sources.
Growing a company using only one's own resources and
refusing any outside investment is an example of
"bootstrapping".
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It involves basing both the operation of the firm and its
growth on the profits and savings generated by it.
Because there is no obligation to pay back the cash or to
dilute control of the firm, this is the first choice that the vast
majority of entrepreneurs choose.
Due to the inherent level of trust that exists between
investors and business owners, many entrepreneurs also turn
to their friends and family for financial assistance.
Even the financial backing can be acquired in the form of a
prize or reward at a pitching event, which are offered by
institutes or organisations that oversee business plan
competitions and challenges.
Even though the amount of money is not very large, it is
typically enough to go through the phase of idea development.
Seed Stage:
A company is required to carry out field trials, test the product
on a selected number of clients, bring on board mentors, and
build a formal team before it is eligible to investigate the
following funding sources.
Incubators are organisations that have been established with
the specific purpose of assisting entrepreneurs in the process
of constructing and launching their enterprises.
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They are also able to assist with a wide variety of value-added
services, such as providing office space, utilities,
administrative aid, legal advice, and so on.
They offer financial assistance in the form of grants, debt
investments, and equity investments in businesses.
The government has also initiated a few loan programmes to
offer entrepreneurs collateral-free financing and to assist
them in gaining access to low-cost finance.
Some examples of these programmes include the Startup
India Seed Fund Scheme and the SIDBI Fund of funds.
Angel Investors are private individuals that put their money
into high-potential enterprises in exchange for a share of the
company's ownership.
There are a number of different angel networks, some
examples of which are the Indian Angel Network, Mumbai
Angels, Lead Angels, Chennai Angels, and others.
At this point, it is possible to raise funds through a method
known as "crowdfunding", in which a big number of people
give a modest amount of money apiece.
Platforms that facilitate online crowd fundraising are
frequently utilised for this purpose.
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Series A Stage:
At this point in the process, monies are being raised so that
the company can develop its user base, product offerings,
extend to other geographies, and so on.
The following categories of funding sources are common:
Venture capital funds are pools of money that are managed
by professionals and are dedicated to making investments in
companies with rapid development.
Every venture has its own philosophy, which should
correspond to the necessities of the business in terms of
favoured industries, stage of start-up, and funding quantity.
Venture capitalists want start-up companies to give them
ownership in exchange for their investment, and they often
provide active mentoring to the startups in which they have
invested.
At this point, the startup is in a position to present the market
response and income to NBFCs and banks to establish its
credibility, which allows for the raising of loans and debt from
these institutions.
Because loans from banks, NBFCs, and other financial
institutions do not do the dilution in the equity, the majority
of business owners choose this method of funding.
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Scaling:
Funding for these late-stage firms comes from venture capital
funds that have larger ticket sizes.
When the market response has already been validated, it is
best to approach venture capital firms, as this is often the best
time to do so.
Exit Options:
It's possible that the investors will come to the conclusion that
they want to sell the portfolio firm to another company
currently operating in the market.
When one firm merges with another, either purchasing the
entire target company or only a portion of it, both businesses
benefit.
A startup may a launch an initial public offering (IPO) by listing
its shares for the first time on a stock exchange.
Considering that an initial public offering (IPO) is a laborious
process, generally speaking, it is only undertaken by
corporations that have a commendable history of earnings
and are consistently expanding.
In addition, the investor has the option of selling their shares
to other venture capitalists or private equity companies in
order to make their exit.
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If the company's founders want to recover control of their
business but lack the liquid assets necessary to execute the
acquisition, they can buy the shares back from the fund of
investors who initially invested in the business.

Process to Startup Fund Raising:

The process of soliciting financial support can be broken down
into the following stages:
➢ Determining whether or not money is required.
➢ Assessing the need for funding.
➢ Assessing Investment Readiness.
➢ Preparation of PitchDeck presentation.
➢ Investor Targeting.
➢ Due diligence by Interested Investor.
➢ Term Sheet.
The new company needs to design a plan that is based on
milestones and includes specific timetables for the things it
wants to accomplish in the future years.
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It is important to make financial estimates over a specific
amount of time, taking into account predicted sales data in
addition to market and economic variables.
It is important to plan not only the cost of production but also
the cost of developing prototypes conducting research, and
manufacturing.
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ABFM MODULE - D
Chapter 20: STARTUP FINANCE (PART-VI)

What we will study?

*What are the different tax exemptions available to startup?
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TAX EXEMPTIONS:
Section 56(2) (viib):
It was implemented by means of the Finance Act 2012 with
the intention of discouraging the generation and use of
unaccounted money through the subscription of shares of a
closely held company at a value that is higher than the Fair
Market Value of the shares of such Company.
This was done with the intention of preventing tax evasion.
According to the part that is being referred to, the total value
that is greater than the fair market value is considered to
constitute revenue for the company under the heading
Income from Other Sources for the applicable fiscal year.
On the basis of a self-declaration, startups have been granted
an exemption from income tax under section 56(2)(viib) for
the issuance of shares at a price higher than their fair market
value.
ESOPs (Employee stock ownership plan):
ESOPs are subject to double taxation.
Once, during the time of the exercise, the whole amount of
the Fair market value that is greater than the Exercise Price is
subject to taxation as a perquisite.
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This perquisite is subject to a TDS deduction from the
employer.
This sum is reflected as Income from Salary on the Employees
Form 16.
Second, when the ESOP is finally put up for sale.
On the other hand, the tax burden at the time of Exercise was
reduced in the Budget for 2020.
By delaying the payment of taxes (on ESOPs) for a period of
five years, or until the employee leaves the company, or until
the person sells their shares, whichever comes first.
Section 80-IAC:
The turnover criteria for eligible startups has been increased
to Rs.100 crores from the limit of Rs.25 crores as a result of
the amendment that was provided by the Finance Act in
Section 80-IAC of the Income Tax Act.
Eligible startups can claim deductions under this section for
any three consecutive years out of 10 years beginning from
the year in which such eligible startups are incorporated.
This modification went into effect from April 2021.
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Section 54 GB:
Under the provisions of Section 54 of the Act, a person or a
Hindu Undivided Family (HUF) may be excused from paying
tax on capital gains that result from the sale of residential
property (a house or a piece of land) as long as certain
conditions are met.
These conditions include the following:
(A) The net consideration that results from such a transfer
must be utilised for subscription in the equity shares of an
eligible startup company that satisfies prescribed conditions.
(B) Additionally, such an eligible startup must utilise the afore
mentioned amount for the purchase of new property within 1
year of the date that the assessee subscribes in equity shares.
(C) In the event of closely held companies in which there has
been a significant shift in the voting power of the company,
there are limitations placed on the ability to deduct business
losses.
On the other hand, in the event of a qualifying startup, such
losses may be carried forward if any of the two conditions
outlined below are met:
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Condition 1:
Continued 51% Shareholding At least 51% of voting power is
beneficially held by the same individuals in the year of set off
of losses who held them as on the last day of the year in
which loss was incurred.
This is referred to as the "continued 51% shareholding"
condition.
or
Condition 2:
On the final day of the preceding fiscal year in which the loss
was incurred, one hundred percent of the company's
shareholders had to continue to hold the same number of
shares on the final day of the preceding fiscal year in which
the loss is to be set off.
In addition, these losses need to have been incurred during
the period of seven years commencing with the year in which
the company was incorporated.

Relaxation by MCA:
The Companies (Acceptance of Deposits) Rules, 2014 have
been modified by the Ministry of Corporate Affairs (MCA) on
September 7, 2020.
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In accordance with the notification issued by MCA, in case of a
private company which is a startup,
(i) A deposit does not include an amount of Rs. 25 lacs or more
received by a startup business in a single tranche from a
person, by way of a convertible note which is convertible into
equity shares or repayable within 10 years from the date of
issue, and
(b) The maximum limit in respect of deposits to be taken from
members set forth in Rule3(3) of the deposit Rules (i.e. 35% of
the aggregate of the paid up share capital, free reserves, and
securities premium account) is not applicable.
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ABFM MODULE - D
Chapter 20: STARTUP FINANCE (PART-VII)

What we will study?

*What are the different Funding Schemes and Programs
available for Startups?
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FUNDING SCHEMES AND PROGRAMMES:
SIDBI Funds of Funds Scheme (FFS):
The government of India established a fund with a total value
of Rs. 10,000 crores with the goals of increasing the amount of
available capital, stimulating private investment, and
ultimately fostering the expansion of the Indian startup
ecosystem.
The money was originally intended to be used as a fund of
capital for new businesses.
In June 2016, it was proposed by the cabinet, and shortly
thereafter, it was founded by the Department for the
Promotion of Industry and Internal Trade (DPIIT).
Capital is provided by FFS to SEBI-registered alternative
investment funds, often known as daughter funds, so that
these funds can make further investments in startup
companies.
Because of this, the fund of funds does not make direct
investments in the new businesses.
The selection of daughter funds and the monitoring of the
distribution of committed money are both tasks that fall
under the purview of SIDBI as it carries out its duties to
manage the FFS.
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Throughout the many stages of a startup's lifespan, the fund
of funds is utilised to supply the necessary funding.
As of 31st March 2022, SIDBI had committed Rs. 7,225.45
crore to 86 AIFs and further 1541.79 crore has been
distributed to 51 AIFs. (AIF: alternative investment funds)
A total of Rs. 9,408 crores have been invested in startups by
AIFs under FFS to boost 582 startups.
The indicative process is as below for considering applications
under FFS:
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Credit Guarantee:
A credit guarantee programme with a corpus of Rs. 500 crore
per year for the next 4 years has been launched with the
intention of making it simpler for early-stage entrepreneurs to
secure funding.
The total amount of money available through the Credit
Guarantee Scheme for new businesses is Rs. 2,000 crores.
Its goal is to provide coverage of guarantee for about 15,000
crores for 3,000 startups, with the average loan amount to
eligible borrowers being 5 crores.
Startup India Seed Fund Scheme (SISFS):
Startup India Seed Fund scheme was launched by the
Department for Promotion of Industry and Internal Trade
(DPIIT) on 19th April 2021 with an estimate of Rs. 945 crores
to provide funding to startups for proof of concept, product
trials, prototype development, commercialization and market
entry.
These would allow the startups to reach the maturity level to
raise investments from angel investors or venture capitalist or
seek loans from financial institutions or commercialized banks.
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The scheme will provide handholding to approx. 3600
entrepreneurs through 300 incubators in the coming 4 years
from 2021.
The scheme was announced by the Prime Minister in January
2021 in his Address of Prarambh: Start-up India International
Summit.
DPIIT has constituted Expert Advisory Committee (EAC) to
assess and select the incubators.
These Incubators will then constitute Incubator Seed
Management Committee to assess, select and observe
startups.
As on 16th March 2022, the Startup India Seed Fund Scheme
(SISFS) has received more than 140 incubator applications, out
of which 76 incubators have been selected by the EAC, and
more than Rs. 290 crores have been approved to them.
Further, as of 16th March 2022, more than 2550 applications
have been received from startups and more than 265 startups
have been further selected for funding via various instruments
such as grants, debts, and convertible debentures.
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Startup India Global Venture:
Startup India Global Venture is held every year by the
Department for Promotion of Industry and Internal Trade in
order to mobilise Global Capital for Innovation in India.
It will assemble many representatives of leading Global
Venture Capital Firms, Limited Partners, Family Offices, High
Network Individuals, Government of India Officials and Top
Corporates.
The 2022 Global Venture Capital session was conducted on
16th January, 2022 with the aim to mobilize domestic and
global capital for Indian startups.
Venture Capital Assistance Scheme:
The purpose of the Venture Capital Assistance Scheme, which
is administered by the Ministry of Agriculture and Farmers
Welfare, is to provide eligible projects with monetary
assistance in the form of an interest-free loan from Small
Farmers' Agribusiness Consortium (SFAC) in order to make up
for any shortfall in the capital requirements for the successful
execution of the project.
Through financial participation, it is possible to facilitate
agricultural entrepreneurs' investments in the establishment
of agribusinesses.
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Farmers, producer groups, partnership or proprietary firms,
self-help organizations, companies , units in Agri export zones,
and agriculture graduates can submit the application on their
own or in groups for the purpose of setting up agribusiness
ventures.
Support for International Patent Protection in Electronics and
Information Technology (SIP-EIT):
Encourage innovation, recognise the value and capabilities of
global intellectual property, and encapsulate opportunities for
growth in the Information Communication Technology &
Electronics (ICTE) sector, are the goals of the Support for
International Patent Protection in Electronics and Information
Technology (SIP-EIT) programme, which is run by the Ministry
of Electronics and Information Technology.
This programme is designed to provide financial support to
micro, small, and medium enterprises (MSME) and technology
startups so that they can file international patents.
The applicant must fulfil the investment restrictions in plant
and machinery or equipment that are specified in the MSME
Development Act 2006 of the Government of India.
Additionally, the applicant must be registered as a company
under the Companies Act of the Government of India.
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MSME 2006 NEW LIMITS:

Start-up India for Financing SC/ST and/or Women

Entrepreneurs or Stand-Up India Scheme:
Small Industries Development Bank of India (SIDBI) makes
arrangements for bank loans ranging from 10 lakhs to 1 crore
to be given to at least one borrower belonging to a scheduled
caste or scheduled tribe, as well as at least one woman, for
the purpose of establishing a greenfield business in India.
A manufacturing firm, a trading concern, or a service concern
could make up the enterprise.
In the case of businesses that are not run by individuals, at
least 51% of the company's shareholdings and the controlling
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stake need to be owned by either a person from a historically
oppressed group or a woman.
There is a minimum age requirement of 18 years old for the
SC/ST or female entrepreneur.
Only projects that are considered greenfield can qualify for a
loan through this programme.
Greenfield refers to an enterprise that is the beneficiary's first
foray into the manufacturing, commercial, or service
industries.
IREDA NCEF Refinance Scheme:
Indian Renewable Energy Development Agency (IREDA) has
prepared and issued a revised refinance scheme assisted by
the National Clean Energy Fund (NCEF) narrating about the
revival of the operations of existing biomass power and small
hydro power projects that have been affected due to
unanticipated circumstances.
IREDA NCEF Refinance Scheme was prepared and issued by
IREDA.
Under the terms of this programme, IREDA would be willing to
provide refinancing to commercial banks and other financial
institutions that are on the timetable.
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The decision to refinance will be made solely by the IREDA,
which will also determine whether or not refinancing is
available and the amount that can be refinanced.
For the scheduled commercial banks and financial institutions
to be eligible to receive refinancing under the plan, they will
need to demonstrate that they satisfy the following
parameters:
(A) Scheduled commercial banks and financial institutions
should have made a profit over the course of the previous 3
years and should not have any accumulated losses.
(B) The total portfolio of the lending institution shouldn't have
a ratio of gross non-performing assets (GNPA) to gross
advances that is higher than 5%, as this is considered an
unsafe level for the lending institution.
This stipulation does not apply to State or Central PSU Banks,
Government NBFCs, or Government Financial Institutions.
(C) The Capital Adequacy Ratio ought to be in accordance with
the rules that have been imposed by the regulatory
authorities.
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Technology Development Fund:
As part of the "Make in India” plan, a fund for the
development of technology has been established so that India
can become more self-sufficient in its defence technologies.
It is a programme that is being carried out by DRDO on behalf
of the Ministry of Defence to meet the requirements of the
Tri-services, Defence production, and DRDO.
The purpose of the scheme is to encourage the participation
of public and private industries, particularly micro, small, and
medium-sized enterprises (MSMEs), in order to establish an
atmosphere conducive to the development of cutting-edge
technological capabilities for use in defence applications
through the incorporation of a research and development
culture in industry.
The following are the criteria that must be met to be eligible:
(A) Public limited companies, private limited companies,
partnership firms, limited liability partnerships, one-person
companies, and sole proprietorships that are registered in
accordance with applicable Indian laws.
(B) An Indian citizen who resides in India and who owns at
least 51% of the company's shares in order to exercise
ownership and control over the business.
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(C) Micro, Small, and Medium-Sized Businesses (MSMEs) and
Startups Registered in India.
The funding will be considered for projects with costs of up to
Rs. 10 crores.
The industry will be awarded grants in order to assist it in
meeting its financial obligations.
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ABFM MODULE - D
Chapter 20: STARTUP FINANCE (PART-VIII)

What we will study?

*What are the different programs running for startups in India
in 2022?
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PROGRAMS RUNNING IN 2022:
India Croatia Startup Challenge 2022:
It was first introduced in 2022, and applicants were invited to
submit their materials beginning in April of the same year.
In order to work together to solve some of the world's most
pressing innovative problems. India and Croatia have formed
a partnership.
Innovations and new businesses that are aiming to improve
areas such as sustainability, education, livelihoods, and skill
development are the focus of Startup India and HAMAG-
BICRO (Croatian Agency for SMEs, Innovations and
Investments) and they want to recognise and support such
endeavours.
This massive competition will not only help innovative
startups and technologies in India and Croatia to co-develop
solutions, but it will also encourage inventive startups in their
efforts to grow these solutions beyond international borders.
The competition is open to any and all registered businesses
(from an early stage all the way up to a late stage) from India
and Croatia that are working in the fields that are outlined in
the problem statement.
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The following categories are outlined in the statement of the
problem:
Clean Water and Sanitation:
As early as 2025, it is anticipated that over half of the world's
population will be living in regions that are affected by water
scarcity.
This prediction is based on current trends.
It is possible that 700 million people would move because of a
lack of water in the year 2030.
If this occurs, it will be the most expensive migration in the
history of the human race.
The solution that is being sought ought to be environmentally
friendly, hygienic, self-sufficient, and independent of the grid.
Reduced Inequality:
Investigation of the ways in which refugee lives can be
reconstructed and improved, as well as ways in which their
future can be made more promising than it is at the moment,
as well as ways in which it can be integrated into regional and
international economies.
The proposed solutions and products ought not to rely on
outside funding and ought to a significant part, to be capable
of supporting themselves financially.
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Decent work and Economic Growth:
Even if the global economy is doing well and jobs are plentiful
for those with degrees in STEM fields (science, technology,
engineering and mathematics), some people still find that
becoming a driver or an on-demand delivery professional is
the most lucrative alternative.
The majority of these professions are at an extremely high risk
of becoming automated within the next 10 years because
there are neither retirements nor safety nets in place.
Therefore, there is a need for solutions that can improve the
skills of workers in the on-demand economy so that they may
easily transition into other industries within the next 5 to 6
years.
I-DAPT Health Tech Hackathon (H2):
I-DAPT: Interdisciplinary Data Analytics and Predictive
Technology.
An all-India I-DAPT Health-tech Hackathon (H2) is being
organized by the I-DAPT HUB FOUNDATION BHU, and it is
looking for student innovators who are developing cutting-
edge innovative ideas in the Health-Tech or Med-Tech field.
Applications for this event can be submitted beginning in May
2022.
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Under this programme, high school students up to Class 12 as
well as undergraduate and graduate students with a science,
engineering, or medical background can apply.
The answer needs to have anything to do with translational
healthcare devices, artificial intelligence-driven medical
technology, smart medical assistance and portable diagnostic
systems, or any other relevant medical technology innovation.

NCL-IIT BHU Cleantech Innovation Challenge 2022:

NCL: Northern Coalfields Limited.
It is a nation-wide effort that aims to instill a culture of
product innovation and an attitude of problem solving by
providing students and startups with a forum to address real-
world issues that are experienced by the mining industry.
The problem statements call for contributions from a wide
range of fields in order to produce solutions of the highest
quality.
The global culture of entrepreneurship may be promoted with
its help, and it can help hackathons at the institute level
sparkle.
a) Draw on the ingenuity and knowledge of the students.
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b) Solicit suggestions from the general public for possible
solutions to issues facing the industry.
c) Make chances for investments available to individuals as
well as businesses who are already operating in this sector.
The following types of individuals are eligible to submit an
application for this competition:
a) Students already enrolled at any university or institute in
India solo founders, entrepreneurs, and other individuals.
b) New businesses and businesses that focus on innovation, as
well as professionals and employed individuals.
The following items are included in problem statement that
pertains to this competition:
a) In a large open cast mine, the design of traffic system at a
road crossing that can accommodate both large and small
dumpers will need to take into account the respective
segments’ level of production.
b) Various groups of workers are going to be given access to a
mobile application so that they can finish their task in
accordance with the maintenance checklist.
c) Various groups of workers will receive a mobile application
that will serve to remind them of the correct safe operating
practice to follow when performing their tasks.
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d) An application focusing on sitting and operating a dragline.
e) Methods and applications for the most efficient use of
water in mining operations during the summer months.
f) Utilization in its entirety of overburden for big open-pit coal
mines.
f) The development of a cage drone or a drone ball for use in
inspecting the various structural components of draglines and
other types of mining infrastructure.
g) The development of an autonomous or wirelessly piloted
underwater drone that can be used for inspecting, mapping,
or exploring flooded mines.
INTERNATIONAL CHALLENGES AND BRIDGES:
The India - Brazil Startup Bridge is an initiative that has been
launched with the goal of encouraging profound collaboration
between the startup ecosystems of the 2 nations.
Startups, investors, incubators, corporates, and aspiring
entrepreneurs from both nations will be able to connect with
one another thanks to the bridge, which will also make it
possible to provide them with the resources they need to
expand and become globalised startups.
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Even more, it developed the Indo-Sweden Mentor link
initiative to boost cross-border collaboration and to inspire
Indian startups to grow their operations in Sweden.
In addition to this, it also launched the UK-India Startup
Launchpad, the India-Korea Startup Hub, and the Indo-Russian
Innovation Bridge.
In addition to this, it made it possible for the finalists of the
National Startup Award to participate in a pitching session
with Japanese stakeholders.
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ABFM MODULE - D
Chapter 21: PRIVATE EQUITY AND VENTURE CAPTIAL
(PART-I)
What we will study?
*All about Venture Capital?
*What is Private Equity?
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INTRODUCTION:
Investors contribute venture capital, which is a form of private
equity as well as a type of finance, to new enterprises and
start-up organisations that they believe have the ability to
expand their operations over the long term.
The majority of funding for new businesses comes from
wealthy individuals, investment banks, and various other
types of financial institutions.
Nevertheless, it does not always take the form of monetary
compensation; rather, it may also be supplied in the form of
specialised knowledge or managerial experience.
Small businesses with outstanding growth potential, or
businesses that have expanded rapidly in the recent past and
appear to be in a position to continue their expansion, are the
traditional recipients of venture capital.
It is possible for a young private firm that is not yet ready or
willing to access the public financial market, to look into
obtaining venture capital.
When a budding company is in the early phases of its
development, venture capital funds look for ways to assist the
company in making a public offering of stocks.
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Venture capital fund anticipate a high rate of return on their
investments.
The industry of venture capital has only recently reached a
certain level of maturity and sophistication, particularly in the
United States, during the course of the past half century or
more.
Private equity is a word that is frequently encountered in
business contexts.
Despite the fact that there are certain Key distinctions
between the two there is a substantial degree of overlap
between the two.
The industry of venture capital in India didn't really get
started until very recently.
Before the establishment of venture capital funds, the various
Indian development financial institutions supplied risk capital
to industry in the form of subscriptions to equity, seed capital
to first generation entrepreneurs, and other forms of risk
capital that were analogous to those provided by these
venture capital institutions.
Although, they did not adhere to the strict method that a
modern-day venture capital fund would adhere to, they were,
in a sense, acting in the role of venture capital funds.
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ICICI ventures, formerly known as Technology Development
and Information Company of India Limited (TDICI), was
launched as a joint venture between ICICI limited and the Unit
trust of India in 1988 and was re-named to ICICI Venture after
becoming wholly owned subsidiary of ICICI Limited (now ICICI
Bank).
At the outset, venture capital, often known as VC, was
confined to the subsidiaries that had been established by IDBI,
ICICI, and the IFCI.
The primary focus of these companies was on large industrial
concerns.
In 1990s, multinational investors began to emerge as more
prominent players in the Indian VC sector as a result of the
liberalisation of foreign investment into enterprises based in
India.
Companies in the consumer services and consumer retail
space have emerged as leading competitors for venture
capital funding, and they have attracted approximately half of
the total venture capital investments.
This is due to shifting patterns and growing liberalisation.
Other important industries included information technology
and services related to information technology, software
development, telecommunications, electronic manufacturing,
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biotechnology and pharmaceuticals, banking and
finance/insurance, public sector disinvestment, media and
entertainment, and education.
When foreign investors arrived, they carried with them the
knowledge and experience they had gained in a variety of
different markets, both mature and emerging.
They have incorporated the investment philosophies and
procedures common in the West into their dealings with
Indian businesses.
Among their essential contributions are things like rigorous
due diligence, stringent contracting, active post-financing
involvement, and a focused attention on exiting the market in
a timely and lucrative manner.
As a result of the fact that the investible funds represent a
component of a worldwide pool of capital, the investment
feelings of foreign venture capital investors in India have
become closely related to investment sentiments on a global
scale.
During its formative years, the Indian industry was defined
more by venture capital-style investments in small enterprises
that were still in early stages of development.
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Increasingly recently, roughly in the last ten years,
investments of the type known as private equity have become
more widespread.
One of the reasons for the move away from investments in
small and early stage companies could be the difficulties in
selling such investments.
Another factor could be that fund managers are unable to
manage greater pools of capital without increasing the
number of companies in their portfolios due to the impact the
larger investments have on their operations.
Because of this reason, the fund management organisations
are able to enjoy economies of scale, which results in more
fee income despite not having to increase the number of their
employees.
It is also possible that the absence of high-quality early stage
opportunities that one can find in the United States and the
lack of experience among investment managers to deal with
the risks in those investments, are some of the other reasons
for the shift to larger investments, as has been the experience
in Europe.
Both of these factors are equally likely to be contributing
factors.
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It is often argued that large private equity companies have the
experience, organisation, protocols, and risk appetite to move
swiftly to analyse and close Investment and they are the only
class of investors who have the capability, track record, and
willingness to add value without any wants to exercise
ultimate control.
Why does VC Exist:
It is a result of the existing deficiencies in bank lending.
Visiting a bank is the typical first step for someone who is
interested in beginning a new enterprise.
However, banks will only provide financing to newly
established companies if those companies already possess
tangible assets to use as collateral for the loan (e.g., a factory).
However, in today's information economy, many new
businesses have little tangible assets, making it difficult for
them to obtain a bank loan.
Additionally, the risk involved in starting a new business is
rather significant.
The risk level is so high that even if financial institutions were
willing to lend, they would have to apply interest rates that
were so prohibitively expensive that no one would take out
the loan.
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Venture capitalists flourish in the high-risk environment that
traditional financial institutions avoid.
They are willing to provide financial backing to very new
businesses that have no assets and likely to do business with
people with little or no prior expertise as well.
Instead of providing financial assistance in the form of a loan,
the investors demand a share of the company as
compensation for the risk they are taking, so that they can
take a greater percentage of the upside, which means they
can get a portion of the profits that will be made in the future.
Another distinction is that the word "bank" simply refers to
money.
However, venture capital consists of financial backing in
addition to strategic guidance on how to create enterprises,
making it more beneficial to business owners.

CHARACTERISTICS OF VENTURE CAPITAL INVESTMENTS:

The following is a list of the most important aspects of a
venture capital arrangement, although there are no standard
terms and conditions that apply to venture capital companies.
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1. Investors in venture capital are typically willing to take on a
high level of risk in the hope of achieving a high rate of return
on their investment.
2. The venture capitalist not only provides the aided company
with funding, but also takes an active interest in leading the
company.
3. The venture capitalist will often make a subscription to
stock or quasi-equity financing instruments, which gives it the
opportunity to partake in both the risk and the profit of the
company in which it invests.
4. The financial burden that is placed on the aided company is
often minimal in the early years of the partnership.
5. The venture capitalist typically has an exit strategy in place
for his or her investment in the business being aided after
three to seven years.
In most cases, the promoter of the company, that is receiving
assistance, has the first option to purchase the equity
investment that is being held by the VC.
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CHARACTERISTICS SHARED BY PRIVATE EQUITY AND VENTURE
CAPITAL, AS WELL AS THEIR KEY DISTINCTIONS:
The following is a list of characteristics that are shared by
private equity and venture capital:
1. They are established as autonomous pools of capital, to
which contributions may be made by institutions or high-net-
worth individuals, and they are managed by managers who
have significant financial incentives directly connected to the
funds' levels of success.
2. They make investments in businesses that are either unable
or not yet prepared to raise funds from members of the
general public.
3. There are not many restrictions placed on the activities they
engage in.
4. Equipped with carefully drafted investment agreements,
they engage in active oversight of the enterprises in which
they have invested.
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Some distinctions that can be made between private equity
and venture capital are as follows:
1. A private equity investment might be used by the investee
company to restructure either its finances or its operations.
2. In contrast to venture capitalists, private equity investors
typically put their money into established businesses in their
later stages of development that have a proven track record.
3. Private equity investors place a greater premium on good
corporate governance, whereas various venture capital
investors devote more of their attention on management
capability.
4. A private equity investment deal may incorporate debt,
which is unusual for a venture capital investment deal.
FINANCING OPTIONS AVAILABLE THROUGH VENTURE CAPITAL:
The various forms of venture capital can be categorised
according to the stages of a company's development in which
they are most useful. The following are the three primary
forms of venture capital financing:
1. Financing for the Initial Stages of Development.
2. Financing for Expansion.
3. Acquisition Financing.
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The following is a list of the many forms of financing based on
the stages of business development:
1. Finance at a low level for the purpose of validating and
developing a new idea.
2. Financing for new businesses in their formative stages,
when those businesses have financial needs related to
product development and marketing.
3. Initial investment, which may include funding for
manufacturing and early sales.
4. A second round of financing, often known as an operational
capital injection, given to early stage enterprises that are
selling items but are not yet generating a profit.
5. The third round of financing, also known as a mezzanine
financing, is when a company receives the funding necessary
to expand after experiencing recent financial success.
6. The fourth round of funding is sometimes referred to as
bridge financing, and it comprises financing for the process of
becoming public.
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ABFM MODULE - D
Chapter 21: PRIVATE EQUITY AND VENTURE CAPTIAL
(PART-II)
What we will study?
*What is the procedure involved in getting venture
capital fund?
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THE PROCEDURES INVOLVED IN OBTAINING VENTURE
CAPITAL FUNDING:
In most cases, the financing of venture capital is accomplished
through the following six primary steps:
1. The Beginning of a Transaction.
2. Screening and shortlisting.
3. Detailed Evaluation and rating of proposals.
4. The Final Deal Negotiations.
5. Post-Investment-Related Activities.
6. Exit Plan.

1. The Beginning of a Transaction:

The first step in venture capital financing is the establishment
of a business relationship.
Because it is impossible to make an investment without first
having a deal, it is vital to have a steady stream of
transactions; nevertheless, the genesis of such deals might
come from a variety of different places.
The referral system is one of the most typical places where
such genesis can be found.
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Deals are brought to the attention of venture capitalists
through a referral system by the entrepreneurs' business
partners, parent organisations, friends, and other contacts.
2. Screening and Shortlisting:
Screening is the process by which a venture capitalist
investigates and evaluates all of the potential ventures in
which he may invest his money.
The projects are sorted into different categories according to a
variety of criteria, including market scope, technology or
product, size of investment, geographical location, stage of
financing, and so on.
For the purpose of conducting the screening process, business
owner are given the option of either provide a concise profile
of their company or being called for a owners are given the
option of either providing face-to-face conversation in order
to seek specific clarifications.
3. Detailed Evaluation & Rating of Proposals:
Following the screening and the completion of the in-depth
analysis, the proposal is given a rating.
The predicted profile, the track record of the entrepreneur,
and the future turnover, among other things, are some of the
documents that are analysed in great detail.
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The review process is a comprehensive procedure that not
only examines the capacity of the project, but also the
capacity of the entrepreneurs to meet such claims.
During the evaluation process, several characteristics of the
entrepreneur are taken into consideration.
These characteristics include the individual's experience,
technical competence, manufacturing and marketing abilities,
and entrepreneurial talents.
Following the completion of exhaustive risk management and
the conclusion of all the relevant considerations, the next step
is to negotiate the terms of the contract.
4. The Final Deal Negotiations:
After determining that the project will be profitable, the
venture investor will begin negotiations on the agreement.
The negotiation of a contract is a process in which the terms
and circumstances of the deal are formed in such a way as to
make it beneficial to both parties involved.
Both the parties present their needs, and then an attempt is
made to find a compromise that will satisfy both sets of
demands.
It has to be a win-win situation for both the parties.
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The amount of the investment, the percentage of the profit
that will be held by each party, the rights of the venture
capitalist and the entrepreneur, and other issues are among
those that are up for negotiation.
5. Post-Investment Related Activities:
When the transaction is finalised, the venture capitalist joins
the venture as an investor and assumes certain rights and
responsibilities in connection with the investment.
The venture capitalist, on the other hand, is not involved in
the day-to-day operations of the company; rather, it is only
concerned when there is a potential for a loss of financial
resources.
The venture capitalists have a representation on the
company's board of directors, which enables them to
participate in the operation of the business and check that it is
carrying out its strategy.
6. Exit Plan:
The final step in investing in venture capital is to create an exit
strategy that takes into account the type of investment, the
size and nature of the financial stake, and other factors.
The exit strategy is designed to generate the greatest possible
gains with the fewest possible losses.
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Exits for venture capitalists might take the form of initial
public offerings (IPOs), acquisitions by other businesses, or the
promoter or an outsider purchasing the venture capitalist's
portion of the company.
ADVANTAGES AND DISADVANTAGES OF VENTURE CAPITAL
FUNDING:
The following are some of the benefits that come along with
financing through venture capital:
1. The investor will receive a significant amount of wealth and
expertise from the investment, despite the fact that the
investment is time consuming and fraught with risk.
2. The amount of funding that can be delivered through equity
is enormous.
3. The business owner is in a less precarious situation because
there is no responsibility for the company to repay the
investor's money.
This is because the investor is well aware of the risks
associated with the project.
The following is a list of the drawbacks of financing through
venture capital:
1. The procedure is drawn out (takes longer time) and difficult
because there is a significant amount of risk involved.
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2. The founder loses his or her independence and control of
the business after an investor becomes a part owner.
3. Since the investments are made with a long-term objective,
the return of the earnings is often delayed.
4. Both the potential for the investment's purpose and the
return on investment are undetermined and uncertain.

EXAMPLES OF VENTURE CAPITAL FINANCING:

One of the top-tier alternative investment asset managers in
the world, Kohlberg Kravis & Roberts (KKR), has entered into a
definitive agreement to invest USD 150 million (roughly
equivalent to Rs. 962 crore) in Mumbai-based listed polyester
maker JBF Industries Ltd.
The company intends to purchase a 20% ownership in JBF
Industries and will also make an investment in zero-coupon
compulsorily convertible preference shares with fourteen and
a half percent of voting rights in its wholly owned subsidiary
JBF Global Pte Ltd, which is situated in Singapore.
The financing that is being provided by KKR will assist JBF in
finishing the projects that are currently underway.
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[Link]
The most recent funding round for India's largest furniture e-
marketplace was led by Goldman Sachs and Zodius
Technology Fund, and it brought in a total of one hundred
million dollars.
Pepperfry plans to utilise the cash to increase the size of its
fleet of delivery vehicles, which will allow the company to
increase its presence in Tier III and Tier IV cities.
In addition to that, it plans to extend its network of carpentry
and assembly service providers as well as build new
distribution centres.
This represents the highest amount of capital ever raised by a
company in India that is solely focused on the e-commerce
sector.
THE IMPORTANCE OF PRIVATE EQUITY AND VENTURE CAPITAL
FOR NEW BUSINESSES:
Due to the fact that their options are limited, entrepreneurs
and small businesses that are just getting started often choose
to work with venture capitalists.
They are not in a position to raise funds through the stock
market due to the numerous conditions that must be satisfied
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before a company can launch an initial public offer or become
a listed company.
On the other side, entrepreneurs would also prefer venture
capital investments over loan financing because the latter
places on them a significant amount of responsibility to pay
interest, which is especially problematic for young businesses
that are not yet profitable.
But why is it considered a short-term investment to engage in
venture capital?
Typically, venture capitalists invest for a period of five years;
after that, when the company has reached a substantial size
or stature, the venture capitalists sell their ownership and
make returns that are multiples of their initial investment.
In most cases, this takes place during a time in the
development of the business when the company is in need of
additional funds and is eager to raise more capital.
This may occur if the startup decides to sell its shares to
additional investors or if it goes public in the market by way of
an initial public offering (IPO).
At this point, investment bankers are brought in, which paves
the way for the owners to execute their exit plan.
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INDIAN VENTURE CAPITAL FIRMS:
The companies listed below are among the successful venture
capital firms in the country:
Blume Ventures:
Blume Ventures is a venture capital firm that was established
in 2010 by Karthik Reddy and Sanjay Nath. They presently
have $280 million invested in over 150 startup businesses as
part of their portfolio and have 24 exits.
These include popular platforms such as Dunzo, Unacademy,
Instamojo, and Milbasket, among others.
Kalaari Capital:
Kalaari Capital is an early-stage, technology-focused venture
capital firm. Kalaari Capital was created in 2006 in Bengaluru
by Vani Kola. This venture capitalist is responsible for
managing a portfolio that is currently worth $650 million.
Among these are companies such as [Link], Milkbasket,
CashKaro, and Zivame, among others. They have already left
some well-known organisations, like Myntra and Snapdeal,
among others.
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Nexus Venture Partners:
Founded in 2006, Nexus was one of the first India-US venture
funds started by successful entrepreneurs in enterprise
technology and consumer internet.
Nexus has been a pioneer of investing in global technology
products and technology-led businesses for India.
Nexus Venture Partner has offices in both the United States
and India. The present portfolio managed by the organisation
is worth more than US$1.5 billion.
Zomato, Snapdeal, Delhivery, WhiteHat Jr., Delhivery, Rapido,
Unacademy, and Olx are some of the significant companies in
which they have invested.
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ABFM MODULE - D
Chapter 22: ARTIFICIAL INTELLIGENCE (PART-I)
What we will study?
*What is Artificial Intelligence?
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INTRODUCTION:
The term "artificial intelligence" (AI) refers to the replication
of human intelligence in computers that have been trained to
think like people and emulate the activities that humans
engage in.
The phrase "artificial intelligence" can also be used to refer to
any type of computer that simulates mental processes
common to humans, such as learning and problem-solving.
The concept of artificial intelligence can be conceptualised as
a computer-controlled robot designed to look and behave just
like a human person.
The most exciting aspect of artificial intelligence is the
prospect of new research leading to the creation of computer
programmes that think with minds that are as fully functional
as those of humans.

Neural Networks

Artificial Intelligence Machine Learning

Deep Learning
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The creation of an artificial brain and its subsequent transfer
to a computer in order for it to carry out tasks in a manner
analogous to those carried out by a human, constitutes the
entirety of artificial intelligence.
In its most basic form, artificial intelligence is a process in
which computer vision is used to conceptualize objects and
the ROBOTICS process is used to control the objects and move
them around.
As a result, we can draw the conclusion that the study of ideas
to create computers that respond to stimulus in a manner
compatible with traditional responses from people, given the
human ability for reflection, judgement, and intention, is what
artificial intelligence research entails.
HISTORY OF ARTIFICIAL INTELLIGENCE:
The study of artificial intelligence is still in its development as
a discipline.
In the 1950s, when scientists and researchers began to
investigate the prospect of computers processing intellectual
powers equivalent to those of human beings, the academic
discipline of Artificial Intelligence was born as a field of study.
Alan Turing, a mathematician from the United Kingdom, is
credited with being the first person to suggest a test to assess
whether or not a machine is intelligent.
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In what would eventually be known as the Turing Test, a
machine plays an imitation game in which it attempts to pass
itself off as a human being by responding to a series of
questions in a manner that is consistent with how a person
would respond.
Turing held the belief that a machine could be judged to have
the same level of intelligence as a human being provided it
could convince a person that they were having a conversation
with another human being when in reality they were not.
John McCarthy, a professor at the Massachusetts Institute of
Technology (MIT), is credited with being the one who first
coined the term "artificial intelligence" in 1956.
McCarthy came up with the term in that year in preparation
for a conference that he was arranging.
The symposium, which AI researchers later came to refer to as
the Dartmouth Conference, was essential in establishing AI as
a separate field of study.
The conference also identified the primary objectives of
artificial intelligence, which are to comprehend and simulate
the cognitive processes of people and to create robots that
behave in a manner that is analogous to this.
Between the years 1956 and 1966, the majority of AI research
focused mostly on theoretical aspects of the field.
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APPLICABILITY OF ARTIFICIAL INTELLIGENCE:
There are many different industries that have found
applications for artificial intelligence, such as medical
diagnosis, stock trading, robot control, law, remote sensing,
scientific discoveries, and even toy manufacturing.
Nevertheless, many uses of AI are not viewed as utilising AI.
According to Nick Bostrom's research, a significant amount of
artificial intelligence has made its way into general
applications, without being classified as AI.
This is because once something becomes valuable enough and
ubiquitous enough, it is no longer considered to be AI.
Many thousands of AI applications are deeply embedded in
the infrastructure of every industry.
During the late 1990s and early 21st century, artificial
intelligence technology became widely used as components of
larger systems.
Despite this widespread adoption, the field of Al is rarely
given credit for the successes it has produced.
The algorithms of the artificial intelligence are designed to
make the decision by using the real time data, combining all
the information by using the sensors, remote inputs, digital
data, and from different sources.
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Research in artificial intelligence has the potential to make an
important and useful contribution to the education of people.
At the very least in many instances, an intellectual difficulty
can be handled by first breaking it down into pieces and then
coming up with a solution for each of those individual
components.
Whether it is a person or a computer trying to solve the
problem, the underlying issues are the same and cannot be
avoided.
It may be beneficial for a human problem solver to be aware
of the strategies used by the computer, particularly in the
event that a particular strategy proves beneficial for the
machine.
Educators and cognitive scientists have come up with the
concept of intelligent computer assisted instruction (CAI), in
which a computer would be programmed to act as a "tutor"
that would observe a student's efforts as they worked to solve
a problem.
This idea has been floated by a number of researchers in the
fields of cognitive science and education.
The tutor would be aware of some of the incorrect
assumptions that people can have about a specific class of
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problem, and they would be able to recognise when a student
was slipping into one of those traps.
It would then be able to provide guidance that was specifically
catered to meet the requirements of that particular pupil.
A second advantage of education is one that is less direct but
is ultimately more significant.
The learner will be able to describe what mechanical thinking
is and what it is not once they have actively learned to
emulate mechanical thinking and have done so successfully.
The activity may result in increased self-assurance regarding
one's capacity to select a cognitive strategy that is ideally
suited to the challenge at hand.
CONTRIBUTION OF GOOGLE:
Google has made immense contributions to the field of
Artificial Intelligence over a period of time.
Some of the important contributions of Google to Artificial
Intelligence are as under:
Search Engine Algorithm -Google RankBrain:
The adoption of Google's RankBrain, a search engine
algorithm that is based on machine learning and its use was
officially confirmed on October 26, 2015.
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It assists Google in processing search results and providing
users with search results that are more relevant to their
queries.
RankBrain was mentioned by Google in an interview in 2015,
and the company stated that it was the third most significant
factor in the ranking algorithm, after links and content.
"RankBrain was used for less than 15% of queries as of 2015,"
according to the report.
According to the findings, the results produced by RankBrain
are within 10% of those produced by the human search engine
engineers working for Google.
If RankBrain encounters a word or phrase it is not familiar
with, the machine is able to speculate as to what other words
or phrases might have a similar meaning and filter the result
accordingly.
This makes it more effective at dealing with search queries or
keywords that have never been seen before.
Search queries are organised into word vectors, which are also
referred to as "distributed representations."
These word vectors are situated in close proximity to one
another in terms of their linguistic similarity.
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RankBrain makes an effort to map the query into words
(entities) or word clusters that have the highest probability of
matching it.
As a result, RankBrain makes an effort to predict what people
mean and records the findings.
It then changes the results to deliver a higher level of pleasure
for its users.
Al Hub:
AI Hub provides developers and data scientists working on
artificial intelligence (AI) systems with access to a collection of
components to use in their work.
Making artificial intelligence more accessible to more
companies requires making it simpler for them to find,
exchange, and reuse the tools and work they already have.
However, until very recently, there was a lack of machine
learning expertise among workers, which made it difficult to
construct a comprehensive resource.
The AI Hub is a one-stop shop for plug-and-play machine
learning (ML) content.
This content includes pipelines, Jupyter notebooks,
TensorFlow modules, and more.
It possesses two important advantages to provide.
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The first step is to make available to all companies in the
world high-quality machine learning resources that have been
built by Google Cloud AI, Google Research, and other teams
located within Google.
The second benefit is that it gives businesses access to a
private and protected portal where they may upload and
share machine learning resources within their own companies.
Because of this, it is simple for companies to reuse pipelines
and deploy them to production in Google Cloud Platform (GCP)
or on hybrid infrastructures by utilising the Kubeflow Pipeline
system in just a few simple steps.
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ABFM MODULE - D
Chapter 22: ARTIFICIAL INTELLIGENCE (PART-II)
What we will study?
*What is Kubeflow Pipeline System?
*What is Google Duplex and Hold for Me?
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CONTRIBUTION OF GOOGLE:
Kubeflow Pipeline System:
Container-centric end-to-end machine learning (ML) processes
are what Kubeflow pipelines all about.
Components, which are self-contained collections of code that
are packaged as container images, are what used to construct
pipelines.
In the machine learning (ML) workflow, each component of
the pipeline is responsible for a specific stage, such as pre-
processing, data transformation, or training a model.
The Kubeflow Pipelines system is responsible for orchestrating
the execution of pipelines, which includes the creation and
running of component containers in the sequence specified by
the workflow graph so as to
(a) Build and distribute repeatable machine learning
workflows with the Kubeflow Pipelines system.
(b) Create machine learning experiments and deploy them
into production using the Kubeflow Pipelines system.
Kubeflow Pipelines is a new component of Kubeflow, which is
a well-known open-source project initiated by Google.
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It packages machine learning code in a manner analogous to
the construction of an application in order to make it
accessible to other users within an organisation.
Kubeflow Pipelines offers a workbench for the composition,
deployment, and management of reusable end-to-end
machine learning workflows.
This makes it a hybrid solution without lock-in that can be
used from the prototyping stage all the way through
production.
In addition to that, it makes it possible for users to conduct
experiments in a quick and dependable manner, allowing
them to explore a variety of ML techniques and determine
which ones perform best for the application they are
developing.
With the Al Hub and Kubeflow pipelines, Google is following
up on its previous release of Cloud AutoML and continues its
strategy to simplify and accelerate its customers' ability to
adapt to Google's AI technologies and services.
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Google Duplex and Hold for Me:
RNN: Recurrent Neural Network

Automatic Speech RNN Text to

Recognition Speech

Conversation
Parameters

An innovative artificial intelligence technology, known as

Google Duplex, is currently being used in the United States
and in a restricted number of other nations across the world.
At first, its use was limited to reservations at restaurants but,
since then, it has been broadened to include various kinds of
activities.
In May 2018, during the Google I/O developer conference,
Google CEO Sundar Pichai made the initial announcement of
Google Duplex.
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He demonstrated how the service could schedule phone
appointments using a voice that was controlled by AI without
requiring the user to take any action.
The artificial intelligence was not only able to comprehend
what was being said on the other end of the line, but it could
also provide appropriate responses to the questions that were
asked of it and add "ums" and pauses in its speech so that it
appeared to be more human-like.
After some time, Google shared a video that walked viewers
through the process of instructing Google Assistant to make a
reservation at a restaurant.
Following the completion of the call shown in the video,
Assistant will send a notification to the user informing them
that a reservation has been booked.
The business revealed in November 2018 that Google Duplex
would soon be made available to a limited number of public
consumers in a few cities throughout the United States.
However, in order to address the controversy, changes were
made, the most notable of which was the requirement that
Assistant must now identify itself and warn call recipients that
their conversations are being recorded.
Businesses have the option to not participate in Duplex at all.
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Expanding its total capabilities, Google began rolling out a
range of Duplex features on the web in 2019.
At the moment, some of the capabilities offered by Duplex
include helped retail checkout, assisted airline check-in,
restaurant reservations, purchasing food or movie tickets
online, setting up haircut appointments, holding in a phone
queue, or assistance with hacked passwords.
Due to the fact that Google is actually constrained by the
capabilities of its AI, the service has the potential to
accomplish much more in the future.
The ability to check business hours is a somewhat
unimportant function, nonetheless, given that normal times
are frequently included in the results of Google Search or
Maps, this option is only truly helpful in the case of holidays
or urgent situations.
You might be able to acquire the inventory status for products
that are in high demand in some instances.
Hold For Me, which is supported by Google Duplex, will
maintain your position in a phone wait while you attend to
other business.
When it is ultimately someone else's turn to speak, the
function will signal to you that it is now your turn to speak
once more.
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ABFM MODULE - D
Chapter 22: ARTIFICIAL INTELLIGENCE (PART-III)
What we will study?
*Use of AI in Banking and Finance?
*Future Scope of AI?
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ARTIFICIAL INTELLIGENCE IN BANKING AND FINANCE:
Utilising Al-based systems allows for increased productivity,
which in turn leads to cost savings, as well as the ability to
make decisions, utilising information that is unavailable to
human decision-makers.
The employment of an AI algorithm system allows for the
detection of fraudulent activity, as well as the easy
identification of anomalies.
A few examples of how artificial intelligence is being used in
the banking industry are given below:
(a) Customer service/engagement (Chatbot):
Chatbots offer a very high return on investment (ROI) in terms
of cost savings, which is one of the reasons why they are one
of the most widely employed applications of AI across all
sectors.
Chatbots are able to efficiently handle the majority of the
tasks that are frequently accessible, such as checking account
balances, viewing micro statements, making fund transfers,
and so on.
This serves to relieve some of the strain placed on other
channels, such as customer service call centres, internet
banking, and so on.
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(b) Robo Advice:
Within the realm of financial services, one of the most
contentious debates is the use of automated guidance.
The goal of a robo-advisor is to gain an understanding of a
client's financial health by evaluating the data that the client
provides, in addition to the client's financial history.
The robo-advisor will be able to make appropriate investment
recommendations in a certain product class, even getting as
detailed as recommending a particular product or equity,
based on the results of this study and the goals that the client
has set for themselves.
(c) Predictive Analytics with a General Purpose Focus:
Artificial intelligence has the ability to recognise specific
patterns and correlations hidden within the data that older
technologies were unable to recognise.
These patterns could imply unmet sales prospects, potential
to cross-sell products, or even measures based on operational
data, all of which could have a direct impact on the company's
income.
(d) Cybersecurity:
Al has the potential to dramatically increase the efficiency of
cybersecurity systems by utilising data from previously
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experienced threats and learning the patterns and signs that
might initially appear to be unconnected in order to forecast
and thwart assaults.
Al may monitor internal risks or breaches and advise remedial
steps, which can result in the prevention of data theft or
abuse.
(e) Scoring Credit and Direct Lending for Customers:
Analysing data from a wide variety of traditional and non-
traditional data sources is one of the most important roles
that Al plays in the process of assisting alternative lenders
estimate the creditworthiness of clients.
Even for those people or companies with a low credit history,
this makes it easier for lenders to design new systems for
lending that are supported by a comprehensive credit rating
model.
Companies such as Affirm and GiniMachine are examples of
notable businesses.
Hybrid Information System (HIS):
A software system known as a hybrid information system is
created by combining various artificial intelligence
methodologies and techniques, such as a fuzzy expert system,
a neuro-fuzzy system, and a genetic-fuzzy system.
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This results in the construction of the hybrid information
system.
An efficient learning system, also known as an HIS system, is
one that not only combines the beneficial aspects of various
learning paradigms and representations, but also overcomes
the limitations of processing capabilities.
These systems are also utilised for the purpose of finding
solutions to issues that arise in a variety of contexts.
The following examples highlight the importance of HIS in the
field of finance:
Portfolio Management:
The management of a portfolio is an involved and complicated
task that contributes significantly to the decision-making
process.
HIS has seen widespread use in portfolio selection, and it has
been playing a vital role in the operations of a great number
of organisations and financial institutes.
The term "artificial intelligence" describes one of the most
fundamental aspects of the modern world, and financial
institutions have started incorporating related technology into
their services and products in order to maintain their
relevance.
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Stock Market Prediction:

AI can help in stock market prediction using a wide range of
computer methods, which are necessary due to the highly
unpredictable nature of the stock market.
Because hybrid systems are able to combine the skills of many
systems with the special traits that each system possesses,
they are utilised to a far greater extent in the field of financial
prediction than they are in any of the other AI disciplines.

THE FUTURE SCOPE OF ARTIFICIAL INTELLIGENCE:

In Artificial Intelligence, the computer performs the following
functions:
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a. The processing of the natural language in order to make it
possible for it to communicate effectively in English, natural
language.
b. For the purpose of storing the auditory inputs, it requires
the Knowledge Representation.
C. Once the inputs have been saved, the next step in
automated reasoning is to use the knowledge that has been
saved to answer the question or draw any graphics.
d. Machine Learning is required in order to adopt all of the
functions in order to take advantage of newly processed and
stimulated ideas and patterns. As artificial intelligence is one
of the most important technological advancement in the field
of science and engineering.
At the moment, artificial intelligence encompasses a vast
number of subfields, ranging from the broad (learning and
perception) to the narrow (playing chess, proving
mathematical theorems, writing poetry, driving a car through
a crowded street, and diagnosing any disease).
These subfields range from the general to the specific.
Artificial intelligence can be applied to any intellectual
endeavor and as such, it has truly become a universal realm.
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To ensure the success of artificial intelligence, we require two

things, namely intelligence and an artefact.
The computer has been the most prominent type of artefact
in recent history.
While the current digital electronic computer was
independently developed and almost immediately invented,
the electromechanical Health Robinson was the first computer
that was successfully put into service.
To grasp the fundamental idea behind understanding a
language, one must first have a firm grasp on the subject
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matter, the surrounding environment, and the structural
components of individual sentences.
Al forms the very foundation of the computer learning, so the
Artificial Intelligence is vastly important to our future.
The computers have already started to have the ability to
harness massive amount of data and use their intelligence to
make flawless decisions and discoveries in a fraction of the
time presently taken by us with the help of Artificial
Intelligence.
Artificial Intelligence is making breakthroughs in medical
research and other fields and is resulting in introduction of
cutting-edge technologies every other day.

A Look at the Future:

a) Transportation: An autonomous car will one day ferry us
from one place to another place, although it could take a
decade or more to perfect.
b) Manufacturing: To perform a limited range of tasks easily
like assembly & stacking and predictive analysis sensors keep
equipment running smoothly, Al powered ROBOTS work
alongside humans.
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c) Education: The early-stage virtual tutors would assist
human instructors & facial analysis gauges the emotions of
the students to help to determine who's bored & struggling
and for better tailor the experience to their individual needs
after the textbooks are digitized with the help of the AI.
d) Customer Services: The system would understand the
context and the nuance, in addition to words, as Al assistant
that can placed human works like to attend your call, book
your appointments, etc.
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ABFM MODULE - D
Chapter 22: ARTIFICIAL INTELLIGENCE (PART-IV)
What we will study?
*What is Neural Network?
*What is Control Theory and Cybernetics?
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NEURAL NETWORKS:
The term "artificial neural networks” refers to a category of
exceptionally effective methods that have seen a surge in
popularity over the past few years.
The reason for this is that when utilised in supervised data
mining applications, they are capable of producing extremely
accurate predictions.
These networks are examples of highly adaptable algorithms
that can be used to solve a wide variety of modelling
challenges, including supervised and unsupervised issues.
When there is a categorical dependent variable, neural
networks can be used instead of logistic regression and
decision trees, or they can be used in conjunction with both of
those methods.
Because of their high degree of adaptability and the fact that
they are capable of working with continuous dependent
variables, neural networks are suitable for use in situations
that include regression.
Neural networks have the potential to evolve into models that
are significantly more sophisticated, more flexible, and
potentially more accurate when utilised in applications where
other methods such as regression, logit, and decision trees
may be used.
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One of the models' flaws is that it might be challenging to
understand what they are trying to convey.
When there are numerous input variables and those variables
have non-linear correlations with the target variable, neural
nets are especially successful.
Neural nets are especially effective when there are many
input variables.
The model structure of a neural net simply needs to be stated
in terms of the number of nodes and hidden layers, which is
one of the many exciting aspects of neural networks.
There is no need for the analyst to be worried about non-
linearities or interactions between the predictors.
When using neural nets, the computer is able to "learn" from
the inputted data in a sense.
In contrast to regression models, there is no specific model
that is defined.
In its place, the procedure is carried out as follows:
"Here are my numbers, this is how complicated the internet
can be. Create a model that can accurately forecast".
Not statistical models, but rather very advanced computer
programmes are being discussed here.
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As a result, no assumptions are made regarding linearity,
normalcy, or anything else of the sort. Because of this, there is
now a notion known as "machine learning".
When there are a large number of observations from which
training, validation, and test subsets may be created, neural
networks function most effectively.
Putting neural networks into practice and making use of them
may be made quite simple with today's software.
There is a wide variety of software available to download.
Even though in one sense they are essentially a mixture of
non-linear regression models, the models that can come from
employing neural networks can be rather intricate.
The complexity of artificial neural networks comes from the
fact that many different simple models are combined into a
single system.
CONTROL THEORY AND CYBERNETICS:
Ktesibios or Ctesibius of Alexandria is credited with building
the earliest self-controlling machine, which was a water clock
that had a regulator that kept a steady flow rate. This was
about the year 250 B.C.
The definition of what an artefact is capable of doing was
shifted as a result of this creation.
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In the past, only living organisms had the ability to adjust their
actions in reaction to shifts in their surrounding environment.
Other types of self-regulating feedback control systems
include the steam engine governor, which was developed by
James Watt, and the thermostat, which was developed by
Cornelis Drebbel, who also developed the submarine.
Both of these examples date back to the 18th and 17th
centuries, respectively.
The nineteenth century saw the development of the
mathematical theory behind reliable feedback systems.
Norbert Wiener is widely regarded as the seminal figure in the
development of what is now known as control theory.
Before becoming interested in biological and mechanical
control systems as well as the connection between those
systems and cognition, Wiener was a great mathematician
who collaborated with a number of notable figures, including
Bertrand Russell.
They believed that purposeful behaviour originated from a
regulatory system that was attempting to reduce "error,"
which they defined as the gap that existed between the
existing state and the desired state.
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Wiener, along with Warren McCulloch, Walter Pitts, and John
von Neumann, arranged a series of major seminars in the late
1940s that examined the new mathematical and
computational theories of cognition.
These conferences were held in Wiener's honour.
The public's awareness that artificially intelligent machines
might be possible was sparked by Wiener's best-selling book
Cybernetics (1948).
In the meantime, W. Ross Ashby was a pioneer in comparable
concepts in the United Kingdom.
"Those who had Wiener's ideas before Wiener's book
appeared" are the members of the Ratio Club, which was
established by Ashby, Alan Turing, Grey Walter, and others.
In his books published in 1948 and 1952 under the title Design
for a Brain, John Ashby focused on his theory that it would be
possible to manufacture intelligence through the utilisation of
homeostatic devices that have adequate feedback loops to
produce stable adaptive behaviour.
The purpose of contemporary control theory, in particular the
subfield of the field known as stochastic optimum control, is
to design systems with the intention of maximising an
objective function over time.
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This is generally in line with how we view AI, which is the
process of creating systems to act in the best possible way.
Why, then, are artificial intelligence (AI) and control theory
two separate sciences, despite the close relationships that
exist between the people who founded them?
The solution can be found in the intimate connection that
exists between the mathematical approaches that were
already understood by the participants and the related sets of
issues that were included into each perspective on the world.
Calculus and matrix algebra, which are the instruments of
control theory, are best suited for describing systems that can
be characterised by predetermined sets of continuous
variables.
On the other hand, artificial intelligence was developed in
part as a means to break out of these perceived confines.
Researchers in artificial intelligence were able to consider
problems like as language, vision, and planning that were
wholly outside the scope of control theorists because they
had access to the tools of logical inference and computing.
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The Connection Between Thought and Language:
Verbal Behaviour book was first released by B. F. Skinner in
the year 1957.
Written by the foremost authority in the field, this description
of the behaviourist method of language acquisition was
exhaustive and specific in its coverage of its subject matter.
However, in a strange turn of events, a review of the book
became just as widely known as the book itself, and it nearly
entirely extinguished people's interest in behaviourism.
Linguist Noam Chomsky, who had recently released a book on
his own theory and was the author of the review, had written
the article. The book was titled Syntactic Structures.
Chomsky pointed out that the behaviourist theory did not
handle the concept of creativity in language, it did not explain
how a child could understand and make up words that he or
she had never heard before.
Chomsky argued that this was a major flaw in the theory.
This was something that Chomsky's theory, which was based
on syntactic models that date back to the Indian linguist
Panini (about 350 B.C.), was able to explain.
In contrast to other theories, Chomsky's theory was formal
enough that it could in principle be programmed.
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Therefore, modern linguistics and artificial intelligence were
"born" at roughly the same time, and they developed
together throughout their childhoods, eventually combining
to form a new subject known as computational linguistics or
natural language processing.
The issue of language comprehension quickly revealed itself to
be a great deal more difficult than it had initially appeared in
1957.
Not only is an awareness of sentence form necessary for
language comprehension, but also an understanding of the
topic at hand and the setting in which it is being used.
This may appear to be self-evident, but it did not gain
widespread recognition until the 1960s.
Knowledge representation is the study of how to put
knowledge into a form that a computer can reason with.

Goals:
The overarching challenge of emulating (or fabricating)
intelligence has been subdivided into a number of specific
challenges.
These are specific characteristics or skills that researchers
anticipate an intelligent system to possess.
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The most emphasis has been paid to the characteristics that
are detailed below:
Reasoning, problem-solving:
Researchers in the early days of computer science devised
algorithms that mirrored the step-by-step reasoning that
humans employ when they solve problems or make logical
deductions.
Research in artificial intelligence had by the late 1980s and
early 1990s established strategies for dealing with uncertain
or partial information.
These methods utilised notions from probability and
economics.
The majority of these algorithms suffered from what is known
as a "combinatorial explosion," which caused them to become
exponentially slower as the size of the issues increased.
As a result, they were not effective at solving huge reasoning
problems.
Even among humans, the method of step-by-step deduction
that early studies in artificial intelligence could replicate is
uncommon.
They are able to address the majority of their issues by
making snap decisions based on their intuition.
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Knowledge representation:
Information engineering and the representation of that
knowledge are what enable artificial intelligence programmes
to intelligently respond to questions and draw conclusions
about real-world events.
An ontology is a set of objects, relations, concepts, and
attributes that are formally characterised in order to ensure
that software agents are able to interpret them.
An ontology is a description of "what exists".
Upper ontologies are ontologies that seek to provide a basis
for all other information and operate as mediators between
domain ontologies, which cover specific knowledge about a
particular knowledge domain.
Upper ontologies are the most broad ontologies, and they are
also termed ontologies (field of interest or area of concern).
A programme that is truly intelligent would also need access
to common sense knowledge, which is the collection of facts
that the typical person is aware of.
In most cases, the description logic of an ontology, such as the
Web Ontology Language, is used to represent the semantics of
an ontology.
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ABFM MODULE - D
Chapter 23: BUSINESS ANALYTICS AS MANAGEMENT TOOL
(PART-I)
What we will study?
*What is Business Analytics?
*What are different types of Analytics?
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INTRODUCTION:
Business analytics (BA) refers to the combination of skills,
technologies, and practices that are used to analyse the data
and performance of an organisation in order to gain insights
and make decisions in the future, that are driven by data.
Statistical analysis is one of the most common methods used
in business analytics.
The objective of business analysis is to determine which
datasets are valuable and which have the potential to boost
revenue, productivity, and efficiency.
When applied appropriately, BA may be used to make
accurate predictions of future events that are related to the
activities of consumers, and trends in the market.
It can also help create more efficient operations, which could
contribute to an increase in revenue, if it is used to its full
potential.
Data Mining History and Origins:
During late 1980s and early 1990s, data warehousing, business
intelligence, and analytics technologies began to develop.
These innovations provided an enhanced capability to
evaluate the ever-increasing amounts of data that
organisations were creating and gathering.
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By the year 1995, when the First International Conference on
Knowledge Discovery and Data Mining was held in Montreal,
the phrase "data mining" was already in common usage.
The Association for the Advancement of Artificial Intelligence
(AARI), which also hosted the conference on an annual basis
for the subsequent three years, was the organisation that was
responsible for sponsoring the event.
The conference, which has been held annually since 1999 and
is commonly referred to as KDD 2021 and so on, is primarily
coordinated by Special Interest Group on Knowledge
Discovery in Data (SIGKDD), which is part of the Association
for Computing Machinery that focuses on knowledge
discovery and data mining.
In 1997, the first issue of a specialised journal called Data
Mining and Knowledge Discovery was released to the public.
It was once published on a quarterly basis, but it is now
published on a biweekly basis and has articles on data mining
and knowledge discovery that have been vetted by experts in
the field.
In 2016, a second publication known as the American Journal
of Data Mining and Knowledge Discovery was made available
to readers.
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ESSENTIALS OF BUSINESS ANALYTICS:
There are numerous different applications for Business
Analytics (BA), however, when it comes to commercial
enterprises, BA is most commonly used to:
a) Analyse data coming from a range of different sources.
Anything from cloud applications to marketing automation
tools and customer relationship management software could
fall under this category.
b) Find patterns within the data sets by employing more
complex analytics and statistical methods. These patterns can
assist you in predicting future trends and providing you with
new information regarding consumers and the behaviours
they engage in.
c) Keep an eye on key performance indicators (KPIs) and
trends as they evolve in real time. Because of this, it is much
simpler for companies to not only store all of their data in a
single location but also draw correct and speedy conclusions
from those data.
Despite the fact that these are the most typical applications,
there are actually four basic approaches to business analysis.
They are put into effect in phases, beginning with the most
elementary ones.
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When it comes to applying BA, there is no single strategy that
is more significant than the others, it all depends on what our
final aim is.
TYPES OF ANALYTICS:
There are four primary approaches to business analysis, and
each one is put into practice in succession, beginning with the
least complicated.
When you apply these four different types of analytics, your
data can be cleaned, examined, and digested in such a way
that makes it feasible to produce answers for any difficulties
that your organisation may be facing.
Descriptive analytics: (What happened in the past)
This method involves the interpretation of historical data and
key performance indicators to discover patterns and trends.
Using methods such as data aggregation and data mining, this
makes it possible to get a comprehensive view of events that
have occurred in the past as well as those that are occurring at
the present time.
Numerous businesses today make use of descriptive analytics
to gain a more in-depth understanding of the actions taken by
their customers and the ways in which they may better direct
their marketing efforts toward those customers.
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Diagnostic analytics: (Which factor contributed for particular
trend)
This type of analysis focuses on previous performance to
understand which factors drive particular trends.
This can be accomplished through the use of drill-down, data
discovery, data mining, and correlation to uncover the reasons
behind particular occurrences.
After arriving at a knowledge of the likelihood of an event and
the reasons why an event may occur, algorithms are utilised
for classification and regression.
Predictive analytics: (What will happen in future, forecasting)
This is the practice of applying statistics to estimate and
evaluate future outcomes by employing statistical models and
techniques derived from machine learning.
In many cases, the conclusions of descriptive analytics are
used in this manner to construct models that determine the
likelihood of particular outcomes.
It is common for sales and marketing teams to employ this
type in order to forecast the opinions of specific clients based
on data collected from social media.
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Prescriptive analytics: (What action to be taken to achieve the
predicted results)
This approach makes use of data on previous performance to
make recommendations for how similar situations should be
managed in the future.
This particular kind of business analytics not only forecasts
results, but it also has the ability to make suggestions
regarding the particular activities that need to take place in
order to get the greatest potential conclusion.
Deep learning and sophisticated neural networks are
frequently used to accomplish this goal.
The purpose of this type of business analytics is often to
match different solutions to the requirements of a customer.
The current state of the company's operations will play a
significant role in determining which approach to pursue.

ELEMENTS OF BUSINESS ANALYTICS:

When one takes a more in-depth look at business analytics,
the method of business analytics that we choose to use is
going to be depend on the end-goal that we establish for
ourselves before beginning the process.
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No matter the approach a person decides to take, they will
undoubtedly be rewarded at the end with insights that can be
put into practice.
The various elements of business analytics are as follows:
1. Data Mining
2. Text Mining
3. Data Aggregation
4. Forecasting
5. Data Visualisation
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ABFM MODULE - D
Chapter 23: BUSINESS ANALYTICS AS MANAGEMENT TOOL
(PART-II)
What we will study?
*What is Data Mining?
*What are the steps involved in Data Mining?
*What are types of Data Mining techniques?
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Data Mining:
Data mining is the process of searching through big data sets
in order to find patterns and relationships that, when
analysed, can assist in the resolution of issues that arise in
commercial enterprises.
Enterprises now have the ability to forecast future trends and
make better informed business decisions thanks to the
methodologies and tools of data mining.
The process of extracting meaningful information from data
sets is known as "data mining," and it is one of the
fundamental disciplines that make up "data science".
Both of these terms refer to the application of advanced
analytics methods.
At a more granular level, data mining is a step in the KDD
process, which is a data science approach for obtaining,
processing, and analysing data.
KDD is an acronym for knowledge discovery in databases.
Knowledge discovery and data mining are two different
concepts, despite the fact that they are sometimes used
interchangeably.
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The information that it generates can be put to use in
applications for business intelligence (BI) and advanced
analytics, both of which involve the examination of historical
data.
Additionally, the information can be put to use in applications
for real-time analytics, which look at streaming data as it is
being created or collected.
Data mining if done well can be of assistance in the planning
and management of numerous elements of corporate
operations and strategies.
This covers services such as marketing, advertising, sales, and
customer support that directly interact with customers.
It also includes functions like production, supply chain
management, finance, and human resources.
The prevention of fraud, management of risks, and planning
for cybersecurity are only few of the many important business
uses that data mining serves.

Data Mining Process: How does it Work:

Data mining is often carried out by data scientists in addition
to other qualified experts in the business intelligence and
analytics fields.
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However, it is also possible for it to be carried out by data-
savvy business analysts, executives, and employees who work
within an organisation and operate as citizen data scientists.
Machine learning and statistical analysis are two of its
fundamental components, coupled with data management
operations that are carried out in order to get the data ready
for analysis.
Mining massive data sets, such as customer databases,
transaction records, and log files from web servers, mobile
apps, and sensors, has become significantly simpler thanks to
the implementation of machine learning algorithms and other
artificial intelligence (AI) tools.
This has resulted in a greater degree of process automation.
The process of data mining can be split down into four basic
steps, which are as follows:
1. Data collection:
It is determined which data are pertinent for an analytics
application, and then they are compiled.
The data could be stored in a variety of source systems, a data
warehouse, or a data lake, the latter of which is becoming an
increasingly typical repository in big data contexts and is
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comprised of a combination of structured and unstructured
data.
There is also the possibility of utilising data from external
sources.
In order to continue with the process after the data has been
collected from its original location, a data scientist will
frequently relocate it to a data lake.
2. Data preparation:
During this stage, a series of actions are carried out to get the
data prepared for the mining stage.
It begins with the exploration, profiling, and pre-processing of
data, and then moves on to the job of data cleansing to
correct errors and other issues related to the data's quality.
It is also necessary to convert data in order to keep data sets
consistent.
This is the case unless a data scientist intends to do an
analysis on raw, unfiltered data for a specific application.
3. The Data Mining Process:
After the data has been prepared, a data scientist will select
the proper data mining technique, at which point they will
apply one or more algorithms in order to mine the data.
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Before being applied to the whole set of data, the algorithms
that are used in machine learning applications often need to
be trained on smaller sample data sets to search for the
information that is being sought after.
4. The interpretation and analysis of the data:
The findings from data mining are incorporated into analytical
models, which are then utilised to guide decision-making and
other aspects of business operations.
It is the responsibility of the data scientist or another member
of the data science team to explain the findings to business
executives and users.
This is typically accomplished through the use of data
visualisation and methodologies that are based on data
storytelling.

Types of Data Mining Techniques:

Various techniques can be used to mine data for different
data science applications.
A common data mining, use case that is enabled by multiple
techniques is pattern recognition.
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Anomaly detection, which seeks to identify outlier values in
data sets, is another data mining use case that is enabled by
multiple techniques.
The following categories of data mining methods are among
the most common:
a) Data mining using association rules:
When mining data, if-then statements known as association
rules are used to determine the connections between
different data elements.
Support and confidence are two of the criteria that are
utilised in the process of evaluating the relationships.
Support is a measurement of the frequency with which the
related elements appear in a data set, and confidence is a
reflection of the number of times an if-then statement is
accurate.
b) Classification:
Using this strategy, the components of the data sets are
partitioned into the various categories that have been
established as part of the data mining process.
Among the many classification methods available, some
examples include decision trees, Naive Bayes classifiers, k-
nearest neighbour, and logistic regression.
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c) Clustering:
As part of the data mining applications, the data elements
that have certain characteristics in common are grouped
together into clusters.
Some examples of clustering methods are k-means clustering,
hierarchical clustering, and Gaussian mixture models.
d) Regression:
Calculating predicted data values based on a set of variables is
another method that can be utilised in the process of
discovering relationships hidden within data sets.
Some examples of regression include linear regression and
multivariate regression.
Regressions can be done with decision trees and other
classification methods too, such as some of those
classification methods.
e) Sequence and path analysis:
Data can also be mined to look for patterns in which one set
of events or values leads to later ones.
This type of pattern can be used to predict future events.
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f) Neural networks:
The functioning of the human brain can be modelled using a
system of computer programmes known as a neural network.
Deep learning is a subfield of machine learning that is
considered to be a more advanced form of the field overall.
Neural networks are particularly helpful in pattern recognition
applications that involve deep learning.
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ABFM MODULE - D
Chapter 23: BUSINESS ANALYTICS AS MANAGEMENT TOOL
(PART-III)
What we will study?
*What are the Data Mining softwares available in
market?
*What are the benefits of Data Mining?
*What are the examples of uses of Data Mining?
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Data Mining Software and Tools:
There are a large number of companies that offer data mining
tools, and these products are generally packaged as part of
larger software platforms that contain a variety of other types
of data science and advanced analytics tools.
Data preparation capabilities, built-in algorithms, support for
predictive modelling, a graphical user interface (GUI) based
development environment, and tools for deploying models
and scoring how well they perform are among the most
important aspects offered by software designed for data
mining.
Alteryx, AWS, Databricks, Dataiku, DataRobot, Google, [Link],
IBM, Knime, Microsoft, Oracle, RapidMiner, SAP, SAS Institute,
and Tibco Software are among the many vendors that offer
solutions for data mining.
Data mining can also be accomplished with the assistance of a
number of other free and open-source technologies, such as
Data Melt, Elke, Orange, Rattle, scikit-learn, and Weka.
There are some software manufacturers that also offer open
source option(s).
For instance, Knime is able to manage data science
applications by combining an open source analytics platform
with commercial software.
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Other businesses, such as Dataiku and [Link], provide free
versions of their respective technologies.
Benefits of Data Mining:
The improved capability of data mining to discover previously
hidden patterns, trends, correlations, and anomalies in data
sets is the primary source of the benefits that data mining
provides to businesses as a whole.
Combining traditional data analysis with predictive analytics is
one way that this knowledge can be put to use to enhance the
processes of decision-making and strategy planning in
commercial enterprises.
The following is a list of specific benefits that come with data
mining:
a) Increased productivity in terms of marketing and sales:
Mining consumer behaviour and preferences for patterns can
help marketers better understand client preferences, which in
turn enables them to develop more targeted marketing and
advertising campaigns.
b) Improved quality of service to customers:
Because of data mining, businesses are able to detect possible
problems with customer service in a more timely manner and
provide contact centre personnel with up-to-date information
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that can be used during phone calls and online chats with
customers.
c) Improvements in the management of the supply chain:
Companies are able to recognise patterns in the market and
make more accurate projections about the demand for their
products, which enables them to better manage their
stockpiles of goods and supplies.
d) Increased production uptime:
The mining of operational data from sensors installed on
manufacturing machines and other industrial equipment
supports predictive maintenance applications.
e) Stronger risk management:
Business executives and risk managers are in a better position
to evaluate the financial, legal, and cybersecurity threats that
a firm faces and to devise strategies for mitigating those risks.
g) Reduction in cost:
Efficiencies in business processes and Mining data helps drive
down costs by improving operating cost cutting down on
unnecessary spending and redundancy in corporate spending.
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Industry Examples of Data Mining:
Listed below are some of the ways in which businesses
operating in certain sectors make use of data mining:
a) Retail:
Online merchants can better focus their marketing efforts,
advertisements, and promotional offers to individual
customers by mining consumer data and tracking shoppers'
clickstreams on the internet.
Data mining and predictive modelling are the driving forces
behind recommendation engines, which make suggestions
about potential purchases to website users.
These technologies are also used in the management of
inventory and supply chains.
b) Financial services:
Data mining technologies are utilised by financial institutions
such as banks and credit card firms in order to construct
financial risk models, identify fraudulent transactions, and
validate loan and credit card applications.
Data mining is also an essential component of marketing and
is essential for determining whether or not existing clients
have prospects for upselling.
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c) Insurance:
Data mining is utilised by insurance companies to assist with
the pricing of insurance policies as well as the determination
of whether or not to approve policy applications.
d) Manufacturing:
Applications of data mining for manufacturers include work to
enhance uptime and operational efficiency in production
plants, as well as product safety and the performance of
supply chains.
e) Entertainment:
Streaming services mine user data to determine what people
are watching or listening to on their platforms, and then
utilise this information to provide personalised suggestions
based on users' viewing and listening preferences.
f) Healthcare:
The ability to diagnose medical diseases, treat patients, and
analyse X-rays and other medical imaging results is made
possible with the use of data mining.
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ABFM MODULE - D
Chapter 23: BUSINESS ANALYTICS AS MANAGEMENT
TOOL (PART-IV)
What we will study?
*What is Text Mining?
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Text Mining:
Text mining, also known as text data mining, is the process of
converting unstructured text into a structured format in order
to find relevant patterns and fresh insights.
Companies are able to investigate and identify hidden links
within their unstructured data when they employ advanced
analytical approaches such as Naive Bayes, Support Vector
Machines (SVM), and other deep learning algorithms.
Within databases, text is one of the types of data that is used
the most frequently.
This information might be arranged in the following ways,
depending on the database:
a) Structured data:
This data has been standardized into a tabular format, which
consists of several rows and columns.
This makes it much simpler to store and handle for the
purposes of analysis and machine learning algorithms.
Inputs like names, addresses, and phone numbers are all
examples of the kinds of things that can be included in
structured data.
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b) Unstructured data:
This data does not adhere to any particular data format that
has been standardised.
Text from various sources, such as social media or product
reviews, as well as rich media formats, such as video and
audio files, may be included in this section.
c) Semi-structured data:
This information is a combination of structured and
unstructured data forms, as the name of the data set suggests.
Although it is organised to some degree, it does not possess
the necessary level of structure to fulfil the prerequisites of a
relational database.
Files written in XML, JSON, and HTML are all examples of
types of data that are considered semi-structured.
Text mining is an immensely helpful activity for organisations
to implement due to the fact that the majority of data in the
world is stored in an unstructured manner.
Text mining tools and natural language processing (NLP)
approaches, such as information extraction, enable us to
transform unstructured materials into a structured format,
which in turn enables analysis and the development of high-
quality insights.
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This, in turn, leads to improved decision-making within
organisations, which in turn leads to improved outcomes for
businesses.
Text Mining Techniques:
Text mining is a process that involves deducing information
from unstructured text data by using a series of activities that
are included in the process.
Text pre-processing is the practice of cleaning and
transforming text data into a format that can be used.
Before you can apply various text mining techniques, you
must first begin with text pre-processing, which is the practice.
This methodology is an essential part of natural language
processing (NLP), and it typically entails the application of
processes such as language identification, tokenization, part-
of-speech tagging, chunking, and syntax parsing in order to
appropriately format data for analysis.
After the text has been pre-processed to your satisfaction, you
will be able to apply text mining algorithms to the data in
order to gain insights.
The following is a list of some of the more common text
mining techniques:
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a) The retrieval of information:
Information retrieval, also known as IR, is the process of
locating and delivering pertinent data or documents based on
a predetermined list of queries or phrases.
IR systems make use of algorithms to monitor user activities
and identify data that is pertinent to those activities.
The process of information retrieval is utilised frequently in
library catalogue management systems as well as in popular
search engines such as Google.
The following are some examples of typical IR side jobs:
(i) Tokenization: refers to the process of separating a lengthy
piece of text into individual sentences and words that are
referred to as "tokens."
After that, these are incorporated into models, such as bag-of-
words, that are used for text clustering and document
matching activities.
(ii) Stemming: is the process of removing prefixes and suffixes
from words in order to determine the form and meaning of
the root word.
This is referred to as "stemming".
This method decreases the amount of space required for
indexing files, which results in improved information retrieval.
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b) Natural Language Processing:
Natural language processing (NLP) is an offshoot of
computational linguistics that draws on techniques from a
variety of fields, including computer science, artificial
intelligence, linguistics, and data science, to give computers
the ability to comprehend spoken and written forms of
human language.
NLP subtasks allow computers to "read" by analysing
sentence structure and grammar, which gives them the ability
to do so.
Typical examples of subtasks are as follows:
(i) Summarization: is a method that condenses lengthy
passages of text into a concise and logical overview of the
most important aspects of a document.
This method provides a synopsis of the text.
(ii) Part-of-speech (PoS) tagging: is a method in which a tag is
assigned to each token in a document based on the part of
speech that the token denotes, such as nouns, verbs,
adjectives, and so on.
Following this step, semantic analysis can be performed on
unstructured text.
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(iii) Text categorization: This task, which is also known as text
classification, is responsible for analysing text documents and
classifying them based on predefined topics or categories.
In other words, this task is responsible for text classification.
When it comes to classifying synonyms and abbreviations, this
subsidiary task is especially useful.
(iv) Sentiment analysis: is a task that identifies positive or
negative sentiment from internal or external data sources.
This gives you the ability to monitor changes in customer
attitudes over the course of time.
It is frequently utilised to provide information about people's
opinions regarding various brands, products, and services.
These insights have the potential to propel businesses toward
connecting with customers and improving processes as well as
the user experiences they provide.
c): The Extraction of Information:
When searching through a variety of documents, information
extraction (IE) brings to the surface the pertinent pieces of
data.
In addition to this, the emphasis is placed on the extraction of
structured information from free text and the storage of
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information regarding entities, attributes, and relationships in
a database.
The following are examples of common information
extraction sub-tasks:
(i) Feature Selection:
The process of selecting the important features (dimensions)
that will contribute the most to the output of a predictive
analytics model is referred to as feature selection, which is
also known as attribute selection.
(ii) Feature Extraction:
The process of selecting a subset of features in order to
improve the accuracy of a classification task is referred to as
feature extraction.
This is of utmost significance when attempting to reduce the
number of dimensions.
(iii) Named-entity recognition (NER): also known as entity
identification or entity extraction, seeks to locate and classify
particular entities in text, such as names or locations.
This can be accomplished by searching for and analysing the
text.
For instance, NER recognises "Mary" as a female name and
"California" as the name of a place in the world.
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ABFM MODULE - D
Chapter 23: BUSINESS ANALYTICS AS MANAGEMENT TOOL
(PART-V)
What we will study?
*What is Data Aggregation?
*What is Forecasting?
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Data Aggregation:
The process of collecting raw data and presenting it in a
summary format for the purposes of statistical analysis is
referred to as data aggregation.
For instance, raw data can be aggregated over a specified
amount of time to provide statistics like the average, the
lowest, the maximum, the sum, and the count.
Following the aggregation of the data and its subsequent
writing to a view or report, you will be able to perform an
analysis on the aggregated data in order to get insights on
specific resources or resource groupings.
There are two different approaches to accumulating data:
Time aggregation: Every single data point that pertains to a
single resource over a particular time period. For Example,
counting all leads from a single marketing channel per month
or per year.
Spatial aggregation: Every single data point for a collection of
resources over a predetermined amount of time. For example,
calculating the total number of leads across all marketing
channels is considered spatial aggregation.
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Time Intervals for Data Collection and Aggregation:
Within the context of a number of different time intervals,
data is compiled and shown in a view or report as follows:
a) Time frame for reports:
This refers to the time frame that encompasses the collection
of data prior to its dissemination.
For instance, a resource summary table can include data that
was gathered for a specific network device over the course of
a single day.
A reporting period could contain raw data points (data that
has not been aggregated) as well as aggregated data points.
The time intervals supported for reports are: daily, weekly,
monthly, quarterly, and yearly.

b) Granularity:
Granularity is defined as the time frame during which
individual data points for a specific resource or collection of
resources are gathered for the purposes of aggregation.
For instance, the granularity would be five minutes if you
wanted to get the average of the data points for a particular
resource that were gathered over the course of five minutes.
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Granularity can range anywhere from one minute to one
month, depending on the view or report type, as well as the
time period being analyzed.
DataView is capable of dynamically aggregating data down to
a granularity of less than one day.
DataChannel aggregates data for larger granularity values.
c) Voting time period:
The length of time over which the frequency with which
resources are sampled for data is established is referred to as
the voting time or polling period.
For illustration's sake, a set of resources may be surveyed
once every five minutes, which would imply that a data point
was produced for each resource once every five minutes.
The output of a spatial aggregate can be affected by a number
of factors, including polling period and granularity.
For illustration's sake, let's say you want to determine the
average of a collection of data points that were gathered for a
group of devices over the course of 10 minutes (the
granularity).
The result is the average of the single data points acquired
from each device, and if the polling period is also 10 minutes,
this is what is calculated.
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If, on the other hand, the polling time is only 5 minutes, then
each device is only sampled once over the 10-minute
granularity period.

Forecasting:
The process of making predictions about what will occur in the
future by taking into account what has happened in the past
and what is happening in the present is referred to as
forecasting.
In its most fundamental form, it is a decision-making tool that
examines previous data and patterns with the goal of assisting
organisations in dealing with the impact of the
unpredictability of the future.
It is a tool for planning that gives companies the ability to map
out their next steps and set budgets that will ideally cover any
unpredictability the future may bring.

Forecasting Methods:
When companies wish to make educated guesses about what
might take place in the future, they have the option of
choosing between two fundamental approaches: qualitative
and quantitative approaches.
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1. Qualitative Research Approach:
The qualitative approach of forecasting, which is sometimes
referred to as the judging method, generates subjective
findings because it is based on the personal judgements of
experts or forecasters.
Because the process of creating forecasts is not based on
mathematics but rather on the knowledge, intuition, and
experience of the experts making them, there is a high
likelihood that the forecasts will contain errors.
One illustration of this would be if a person were to predict
the outcome of a finals game in the NBA, which, of course,
would be influenced more by their own personal drive and
interest.
The possibility of error is one of the shortcomings of using
such a strategy.
2. Quantitative Technique:
The quantitative technique of predicting is based on a
mathematical procedure, which gives it the qualities of being
consistent and objective.
It avoids based the results on opinion and intuition, opting
instead to use enormous volumes of data and statistics that
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are then interpreted, as opposed to basing the results on
opinion and intuition.

Features of Forecasting:
The following is a list of some of the characteristics of creating
a forecast:
1. Involves future events:
Because they are used to make predictions about the future,
forecasts are an essential part of the planning process.
2. Covers recent and historical occurrences:
Opinions, intuition, and educated estimates, in addition to
facts, numbers, and other pertinent data are the foundations
around which forecasts are constructed.
All of the components that go into the formation of a
prediction are, to some extent, a reflection of what has
occurred with the company in the past as well as what is
anticipated to take place in the foreseeable future.
3. Uses various techniques of forecasting:
The quantitative methods are utilised by the majority of firms,
notably in the processes of planning and budgeting.
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The Process of Forecasting:
In order to get reliable results, forecasters need to follow a
methodology that is both detailed and methodical.
The following are some of the stages that make up the process:
1. Establishing a foundation for future projections:
Developing the foundation for the study of the company's
state and determining where the company is now positioned
in the market is the first stage in the process.
This step also marks the beginning of the process.
2. Formulating projections for the company's ongoing
business activities:
The first part of the forecasting process involves conducting
an investigation.
The second part of the forecasting process involves estimating
the future conditions of the industry in which the company
operates, projecting and analysing how well the company will
do, and making projections based on those analyses.
3. Making adjustments to the forecast:
This entails going back through the many forecasts that have
been made in the past and contrasting them with the actual
events that have transpired with the company.
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The disparities between historical data and the most recent
projections are broken down and analysed, and the factors
that led to the differences are taken into consideration.
4. Taking a look back at the steps:
At each stage, there is a check, after which tweaks and
improvements are done.
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ABFM MODULE - D
Chapter 23: BUSINESS ANALYTICS AS MANAGEMENT
TOOL (PART-VI)
What we will study?
*What is Data Visualisation?
*What are the different types of Data Visualisation?
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Data Visualisation:
The process of representing data through the use of popular
graphics, such as charts, plots, infographics, and even
animations, is referred to as data visualisation.
These visually appealing representations of information
simplify the communication of complicated data relationships
and insights that are generated by data in a way that is easy
to grasp.
It is crucial to highlight that the usage of data visualisation is
not limited to data teams alone; it can serve a number of
functions, and its use is not limited to that.
It is also utilised by management in order to communicate the
organisational structure and hierarchy, whilst data analysts
and data scientists utilise it in order to uncover and explain
patterns and trends.
According to Harvard Business Review, the primary functions
of data visualisation may be broken down into the following
four categories:
idea creation, idea illustration, visual discovery, and everyday
dataviz or data visualisation.
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The expanded coverage of these topics is as under:
The practice of using data visualisation to stimulate new idea
development across teams is becoming increasingly popular.
They are usually put to use during the brainstorming or design
thinking sessions that take place at the beginning of a project.
These sessions support the collection of various points of view
and bring attention to the concerns that are shared by the
group as a whole.
Even though initial visualisations are typically not polished or
improved in any way, they assist build the foundation within
the project to ensure that the team is on the same page
regarding the problem that they are trying to address for
important stakeholders.
The practice of using data visualisation to illustrate a concept
is helpful in communicating an idea, such as a strategy or
method.
It is most commonly used in educational environments such as
tutorials, certification courses, and centres of excellence.
However, it can also be used to represent the structures or
processes of organisations, thereby facilitating
communication between the appropriate individuals for a
given set of duties.
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Gantt charts and waterfall charts are two types of charts that
are widely used by project managers to describe workflows.
Visual discovery and day-to-day data visualisation are
increasingly integrated with the work of data teams.
Visual discovery assists data analysts, data scientists, and
other data professionals in locating patterns and trends within
a dataset.
Every day data visualisation, on the other hand, is beneficial
to the subsequent storytelling that takes place after a new
insight has been discovered.
The process of data science includes a crucial stage called data
visualisation, which assists teams and individuals in more
effectively communicating data to their co-workers and
decision makers.
Types of Data Visualisation:
The Egyptians, who lived before to the 17th century, are
credited with developing the first kind of data visualisation,
which was primarily utilised to aid with navigation.
As time went on, people began to use data visualisations for a
wider variety of applications, including those in the fields of
economics, social sciences, and health.
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Dashboards are useful data visualisation tools for tracking and
visualising data from many data sources.
They provide visibility into the consequences of certain
behaviours on performance, whether such behaviours are
carried out by a team or by a team that is next to it.
The following are examples of common visualisation
approaches included in dashboards:
a) Ables:
This is a grid with rows and columns that can be used to
compare different variables.
Tables have the ability to display a large amount of
information in an organised manner.

b) Pie charts and stacked bar charts:

Both of these types of graphs are broken up into portions that
each reflect a different component of the total.
They offer a straightforward method for arranging data and
contrasting the proportions of the various constituent parts.
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c) Line graphs and area charts:

These are graphical representations that depict how one or
more quantities have changed over time by plotting a set of
data points in a certain order.
Area charts connect data points with line segments, stacking
variables on top of one another, and utilising colour to
differentiate between variables.
Line graphs use lines to depict these changes, whereas area
charts connect data points with line segments.
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d) Histograms:
This graph depicts a distribution of numbers using a bar chart
(with no spaces between the bars), reflecting the quantity of
data that falls within a given range.
Histograms do not have any spaces in between the bars.
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An end user can easily spot anomalies within a dataset with
the assistance of this graphical representation.

e) Scatter plots:
These graphics are helpful in reveling the link between two
variables, and they are widely employed within the analysis of
regression data.
Scatter plots can be found in regression data.
However, these are sometimes confused with bubble charts,
which are used to represent three variables via the x-axis, the
y-axis, and the size of the bubble.
In this case, however, the bubble charts are used to display
three variables.
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f) Heat maps:
These are handy graphical representations that allow for the
visualisation of behavioural data according to location.
This can be a spot on a map, or it could even be a webpage.

g) Tree maps:
Tree maps present hierarchical data as a set of nested forms,
most often rectangles; these maps are becoming increasingly
popular.
Tree maps are an excellent tool for comparing the proportions
of different categories based on the size of their respective
areas.
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EXCEL PROFICIENCY:
The ability to edit text documents, develop templates, and
automate the generation of tables of content in Microsoft
Word is often required to be considered proficient in
Microsoft Office.
Being proficient with Excel requires being able to execute and
create functions, pivot tables, and charts.
The following is a list of the numerous Excel skills that need to
be kept up to date:
1. Spreadsheets. 2. Workbooks.
3. Formulas. 4. Data Linking.
5. Pivot Tables. 6. Charts.
7. Data Analytics. 8. Macros and Automatization.
9. IF Statements. 10. Data Validation.
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ABFM MODULE - D
Chapter 23: BUSINESS ANALYTICS AS MANAGEMENT TOOL
(PART-VII)
What we will study?
*What is Big Data Analytics?
*What are different uses of Big Data Analytics?
*All about uses of Big Data Analytics in different
Industries?
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BIG DATA ANALYTICS:
Big data analytics is the application of more advanced
analytical methods to very large, diverse data sets.
These data sets might be organised, semi-structured, or
unstructured, come from a variety of sources, and range in
size from terabytes to zettabytes.
Big data is a term that refers to data sets that are so large or
complex that typical relational databases are unable to
effectively record, manage, or process the data in a timely
manner.
This form of data is known as unstructured data.
Big data can be characterised by high volume, high velocity, or
high diversity, or all three of these properties simultaneously.
The rise of artificial intelligence (AI), mobile, and social
platforms, as well as the Internet of Things (IoT), are all
contributing to an increase in the complexity of data through
the introduction of new forms and sources of data.
For instance, big data can be derived from sensors, devices,
video/audio, network, log files, transactional applications, the
web, and social media, with a significant portion of it being in
real time and on a very large scale.
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Big data analysis enable analysts, academics, and business
user to make better judgments, more quickly, using data that
was previously either inaccessible or unsuitable.
Businesses have the ability to gain new insights from
previously untapped data sources by using advanced analytics
techniques such as text analytics.
Uses of Big Data Analytics:
Big Data Analytics can be used for the following purposes:
a) Enhancing the integration of the customers:
Gathering data that is structured, semi-structured, and
unstructured from the various touch points that customers
have with the firm in order to obtain a comprehensive
understanding of the client’s action and the factors that
motivate them so that we may better our personalised
marketing.
Data sources can include social media, sensors, mobile devices,
sentiment and call log data.
b) Detecting and minimising frauds:
Monitoring transactions in real time and staying on the
lookout for strange patterns and behaviours that could
indicate fraudulent activity.
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Companies are able to deflect and prevent fraud by utilising
the power of big data conjunction with predictive and
prescriptive analytics, as well as the comparison of historical
and transactional data.
c) Improving the efficiency of the supply chain:
Collecting and examining large amounts of data to figure out
how items get to their final destination highlighting areas of
inefficiency as well as opportunities to cut costs and save both
time and money.
Tracking vital information from the warehouse to its final
destination with the use of sensors, logs, and transactional
data is possible.
The use of big data analytics in the following six industries has
been explained below:
1. Manufacturing.
2. Retail.
3. Health Care.
4. Oil & Gas.
5. Telecommunication.
6. Financial Services.
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Manufacturing:
The manufacturing industry has been completely disrupted by
the digital revolution.
Manufacturers are now finding new methods to harness all of
the data that they generate in order to enhance the efficiency
of their operational processes, streamline their business
procedures, and uncover important insights that will drive
both profits and growth.
a. The practice of predictive maintenance:
Big data can assist in the prediction of equipment failure.
Analysis of structured data (including the year, make, and
model of the equipment) as well as analysis of multi-
structured data might lead to the discovery of potential
problems (log entries, sensor data, error messages, engine
temperature, and other factors).
With this information, manufacturers are able to maximise
the amount of time that their components and equipment are
operational and reduce the amount of money spent on
maintenance.
More than simply the breakdown of equipment can be
forecast with the help of this data.
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b. The effectiveness of operations:
One of the areas in which big data can have the largest impact
on a company's profitability is the operational efficiency of
the business.
Big data gives you the ability to study and evaluate production
processes, provide a proactive response to feedback from
customers, and anticipate future demand.
c. Production optimisation:
Increasing revenue while lowering costs is possible if
production lines are optimised.
Using big data, manufacturers may better analyse the
movement of things through their manufacturing processes
and determine which sectors could stand to gain from the
change.
The examination of the data will show which processes
contribute to an increase in production time as well as which
regions are creating delays.
Retail:
Retail is an industry with a lot of strong competition.
Companies constantly work to find new ways to set
themselves apart from competitors.
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The usage of big data is prevalent throughout the entirety of
the retail process, from product projections and demand
forecasting to in-store optimization and inventory
management.
Retailers are discovering new avenues of innovation by
utilising big data.
a. Product development:
The use of big data helps us to anticipate the demand from
customers.
We can create predictive models for new products and
services by first identifying important characteristics of
completed and ongoing product offers, and then modelling
the relationship between those characteristics and the degree
to which the offerings were successful commercially.
We can dig deeper for planning, producing, and introducing
brand-new products with the help of the data and analytics
gleaned from focus groups, social media, test markets, and
early store rollouts.
b. Customer experience:
The competition for consumers has been becoming more and
more intense day by day.
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Big data gives merchants a more accurate picture of the
customer experience, which they can utilise to hone their
business practices.
Companies are able to optimise customer interactions and
maximise the value offered to them if they collect data from
social media platforms, website visits, phone records, and
other company interactions, as well as from other data
sources.
The analysis of large amounts of data can be utilised to make
customised offers, decrease customer turnover, and improve
proactive problem resolution.
C. Customer lifetime value:
All customers are valuable. However, there are some that are
more precious than others.
Big data gives you insights on consumer behaviour and
spending habits, allowing you to determine which customers
are the most valuable to your business.
When you have a better understanding of who they are, you
will be able to better target marketing efforts at them.
They are able to receive more attention from sales staff.
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d. The in-store shopping experience:
The in-store experience may be enhanced by the utilisation of
big data.
A growing number of retailers are beginning to evaluate
customer data obtained through mobile apps, in-store
purchases, and geolocations in order to improve
merchandising and persuade customers to make full
purchases.
e. Pricing analytics and optimization:
Retailers have a responsibility to understand the true
profitability of their client base, the various ways in which
markets might be divided up, and the scope of any
prospective future opportunities.
A review of profits and margins throughout the entire
business process can be of assistance in locating chances to
increase pricing as well as places in which profits may be being
lost.
Financial Services:
Big data is being utilised to the fullest potential by banks and
other businesses in the financial services industry.
Big data has enabled businesses in the financial services
industry to gain a competitive advantage in a variety of areas,
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including the capture of new market opportunities and the
reduction of fraud.
a. Fraud and compliance:
When it comes to safety, the problem isn't just a few of
unscrupulous hackers.
The industry that provides financial services is competing
against full teams of experts.
Despite the fact that both the threat landscape and the
compliance standards are always changing.
With the use of big data, businesses are able to recognise
patterns that point to fraudulent activity and to combine vast
volumes of information in order to simplify regulatory
reporting.
b. Drive innovation:
Big data may provide enterprises with insightful information
that can help them develop.
The interdependencies that exist between persons,
institutions, entities, and processes become increasingly
obvious when big data analytics are performed.
Organizations are able to improve their decision-making
about new products and services if they have a better
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awareness of the trends in the market and the needs of their
customers.
c. Anti-money laundering:
As a result of governments enacting anti-money laundering
rules, businesses that provide financial services are under
more pressure than they have ever been before.
Because of these restrictions, financial institutions are
required to provide evidence of adequate care and file reports
of suspicious conduct.
Big data analytics may be able to assist businesses in
recognising possible instances of fraud in a highly complex
industry.
d. Financial regulatory and compliance analytics:
Companies that provide financial services are required to
adhere to a wide number of regulations pertaining to risk,
behaviour, and transparency.
At the same time, financial institutions are obligated to
comply with the Basel III, and any other rules that call for
extensive reporting.
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ABFM MODULE - D
Chapter 23: BUSINESS ANALYTICS AS MANAGEMENT TOOL
(PART-VIII)
What we will study?
*What is the Importance of Big Data Analytics?
*How does Big Data Analytics work?
*What are the different Big Data Analytics Tools
available in the market?
*What are the challenges faced by Big Data Analytics?
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Importance of Big Data Analytics:
Big data analytics enables businesses to get control of their
data and make better use of it to discover new opportunities.
Because of this, subsequent corporate decisions are wiser,
operations are more efficient, profits are higher, and
consumers are more satisfied.
Companies that combine their use of big data with more
advanced analytics can increase their value in a number of
different ways, including the following:
1. Reducing cost:
When it comes to the expense of keeping vast amounts of
data, big data technologies such as cloud-based analytics can
drastically lower such costs (for example, a data lake).
In addition to this, big data analytics assists businesses in
discovering new and more effective ways to conduct their
operations.
2. Speedier and quality decisions:
Businesses are able to rapidly evaluate information and make
quick decisions based on that analysis thanks to the speed of
in-memory analytics, which, when paired with the capacity to
study new sources of data, such as streaming data from the
internet of things (IoT), is extremely helpful.
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3. Developing and marketing new products and services:
Through the use of analytics, companies can gain the ability to
provide customers with exactly what they want, when they
want it by understanding their demands and how satisfied
they are with their experiences.
With the use of big data analytics, more businesses now have
the opportunity to create innovative new products to satisfy
the ever-evolving requirements of their customers.
How does Big Data Analytics Work:
The term “big data analytics" refers to the process of
collecting, processing, cleaning, and analysing massive data
sets with the goal of assisting businesses in operationalizing
their big data.
1. Collection of Data:
The collecting of data takes on a variety of forms across
organisations.
With the technology available today, businesses are able to
collect both structured and unstructured data from a wide
range of sources, including cloud storage, mobile applications,
in-store Internet of Things sensors, and more.
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A portion of the data will be kept in data warehouses, which
are locations that are conveniently accessible by business
intelligence tools and solutions.
Raw data or data that has not been structured can be stored
in a data lake.
If the data is too diverse or complicated for a warehouse, it
can be allocated metadata and stored in a data lake instead.
2. Processing of Data:
In order to achieve reliable results from analytical queries, the
data must first be properly organised after they have been
collected and stored.
This is especially important when the data is both vast and
unstructured.
The amount of data that is now available is expanding at an
exponential rate, which presents a difficulty for companies
that need to process that data.
Batch processing, which looks at huge data blocks over a
period of time, is one of the processing options available.
When there is a longer turnaround time between gathering
data and analysing it, batch processing is a valuable technique
to utilise.
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Stream processing examines relatively small batches of data
all at once, cutting the amount of time that passes between
data collection and analysis so that decisions can be made
more quickly.
Processing data in streams is more difficult and typically more
expensive.
3. Data Cleaning:
In order to strengthen the results and increase the quality of
the data, it is necessary to clean the data.
This means that the data must be correctly formatted, and
any redundant or irrelevant information must be removed or
accounted for.
Incorrect data can obscure and mislead, which ultimately
results in inaccurate insights.
4. Analysis of Data:
Getting huge data into a useful form takes time.
When it is ready, sophisticated analysis procedures can
transform large amounts of data into meaningful insights.
The following are examples of these strategies for analysing
huge data:
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(a) Data Mining:
The process of data mining involves sorting through massive
datasets to find patterns and linkages.
This is accomplished by locating data outliers and forming
data clusters.
(b) Predictive analytics:
This is a method that analyses the past data of an organisation
in order to create forecasts about the future and to spot
potential threats and opportunities
(c) Deep learning:
This imitates human learning patterns by employing artificial
intelligence and machine learning to layer algorithms and
uncover patterns in the most complicated and abstract data.
This is accomplished through the use of the "deep learning"
technique.
Big Data Analytics Tools and Technology:
The analysis of large amounts of data cannot be reduced to a
single instrument or piece of technology.
Instead, you'll need a combination of different kinds of
technologies to help you collect, process, clean, and analyse
large amounts of data.
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The following is a list of some of the most important actors in
big data ecosystems:
a) Hadoop:
Hadoop is an open-source system that stores and analyses
large datasets on clusters of commodity hardware in an
efficient manner.
This framework can manage massive amounts of structured
and unstructured data, and it is free to use.
Because of these features, it is an invaluable component for
any big data activity.

b) NoSQL databases:
NoSQL databases are non-relational data management
systems that do not require a fixed scheme.
Because of this, they are an excellent choice for large amounts
of raw data that are not structured.
These databases, whose name comes from the phrase "not
simply SQL," are able to deal with a wide variety of data
models.
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c) MapReduce:
MapReduce is a key component Hadoop's framework, and this
framework serves two different purposes.
The first step is called mapping, and it distributes data to
different nodes within the cluster using various filters.
The second step is called "reducing," and it involves organising
and condensing the results obtained from each node in order
to respond to a query.

d) "Yet Another Resource Negotiator": is what "YARN" stands

for. It is yet another component of the Hadoop system of the
second generation.
The job scheduling and resource management in the cluster
can be improved with the assistance of the cluster
management technology.
e) Spark:
Spark is an open-source cluster computing framework that
provides an interface for programming complete clusters by
utilising implicit data parallelism and fault tolerance.
Spark is capable of handling both batch and stream processing,
which enables it to do computations quickly.
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f) Tableau:
Tableau is a platform for end-to-end data analytics that
enables you to prepare, analyse, collaborate, and share your
insights derived from large amounts of data.
Tableau is a leader in the field of self-service visual analysis,
which enables individuals to pose novel inquiries using
managed big data and to simply communicate their findings
throughout an organisation.

Challenges of Big Data:

Enormous data delivers big benefits, but it also introduces big
issues, such as new privacy and security concerns, accessibility
for business users, and the need to choose the correct
solutions for your company's requirements.
In order for enterprises to make the most of incoming data,
they will need to handle the following issues:
Making big data accessible:
When there is a greater volume of data, it is significantly more
challenging to collect and process the data.
It is imperative that organisations make the usage of data
simple and accessible to individuals with varying degrees of
expertise.
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Maintaining data quality:
Due to the large amount of data that needs to be maintained,
businesses are devoting more time than they ever have before
to the process of checking for mistakes, inconsistencies,
conflicts, and duplication.
Data Security:
Privacy and safety are becoming ever more of a worry as more
and more data is collected.
Before organisations can begin to reap the benefits of big data,
they will need to first work toward compliance and establish
data processes that are particularly stringent.

Identifying appropriate tools and platforms:

Continuous innovation takes place in the field of developing
technologies that can process and analyse large amounts of
data.
In order to meet their specific requirements, organisations
have to locate suitable technological solutions that are
compatible with the ecosystems they have already developed.
The optimal solution is frequently one that is also flexible and
able to adapt to alterations in the underlying infrastructure at
a later point.
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ABFM MODULE - D
Chapter 24: GREEN AND SUSTAINABLE FINANCING (PART-I)

What we will study?

*What is Green Finance?
*What is Sustainable Finance?
*What are the ISO standards for Green Finance?
*All about ISO 32210?
*All about ISO 14007?
*All about ISO 14008?
*All about ISO 14097?
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INTRODUCTION:
Around the world, regulators, national authorities, and
supranational organizations have begun to pay attention to
climate risk and sustainable finance.
The report, that was put out by the Intergovernmental Panel
on Climate Change (IPCC) in August 2021, underlined the
changes that have been noticed in the climate of the Earth in
every region and throughout the whole climate system.
According to the findings of the report, emissions of
greenhouse gases from human activities are responsible for
approximately 1.1 degrees Celsius worth of warming that has
occurred between the years 1850 and 1900.
The report also finds that the global temperature is expected
to reach or exceed 1.5 degrees Celsius warming, over the next
20 years, on average.
Consequently, during the Conference of the Parties (COP26)
Summit, which took place in Glasgow, United Kingdom, in
November 2021, a number of governments pledged to take
extensive climate action.
Therefore, the focus that has been placed on climate change
has increased as a result of the recent IPCC Report and the
COP26 Summit.
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The 27th Conference of the Parties to the United Nations
Framework Convention on Climate Change - COP27 - builds on
the outcomes of COP26 to deliver action on an array of issues
critical to tackling the climate emergency - from urgently
reducing greenhouse gas emissions, building resilience, and
adapting to the inevitable impacts of climate change, to
delivering on the commitments to finance climate action in
developing countries.
Faced with a growing energy crisis, record greenhouse gas
concentrations, and increasing extreme weather events,
COP27 seeks renewed solidarity between countries, to deliver
on the landmark Paris Agreement, for people and the planet.
One of the many phrases, that are used to represent activities
that are connected to the two-way interaction between the
environment and finance and investment, is "green finance".
Over the course of the past decade, it has developed into a
common phrase, in part as a result of the proliferation of
national green investment banks and the fast-expanding
green bond market.
However, green finance is strongly connected to other
concepts, such as climate finance and sustainable finance,
which are related in some way.
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The United Nations Environment Programme provides the
following helpful explanations of what each term refers to in
the following order:
1. A sustainable financial system takes into account the
environment, society, and government in addition to the
economy.
2. Green finance does not take into account social or
economic factors, but it does incorporate climate finance.
3. The term "climate finance" refers to a subset of "green" or
"environmental" financing.
Therefore, the most inclusive phrase is sustainable finance,
which encompasses all forms of financing activity that aid in
the achievement of sustainable development.
Both "financing the green," or investing in environmentally
friendly solutions, and "greening the finance," or reorienting
the financial system, are necessary components of the
investment that must be made in order to address the
sustainability concerns that exist in the modern world.
According to a report published by the Global Sustainable
Investment Alliance, which is a group of organisations tracking
these movements in five regions from the United States to
Australia, at least $30.7 trillion of funds are held in sustainable
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or green investments, which is an increase of 34% from the
year 2016.
The International Energy Agency estimates that a total of 53
trillion US dollars ought to be invested in the global energy
industry by the year 2035 in order to avoid climate change
from becoming a hazard to human life.
This is an example of supporting green initiatives.
On the other hand, greening the finance can be demonstrated
by the research conducted by the New Climate Economy,
which reveals that the implementation of this systemic shift
will require money equal to ninety trillion dollars.
In a nutshell, there is a significant need for environmentally
friendly and sustainable forms of money.

ISO STANDARDS FOR GREEN FINANCE:

Investors have been drawn to growing industrial areas, such
as renewable energy, energy efficiency, green building, and
recycling, not only due to the prospect of healthy financial
returns in a developing part of the economy, but also by the
ethos of ethical and environmental investments.
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The International Organization for Standardization (ISO) is
working on a set of standards to underlie and catalyze green
and sustainable finance.
Investments in environmental initiatives and programmes will
benefit from having more organisation, openness, and
credibility, as a result of this.
The International Organization for Standardization (ISO) has
already begun publishing standards to meet these needs
within the confines of three ISO technical committees (TCs):
ISO/TC 207: Environmental Management.
ISO/TC 322: Sustainable Finance and
ISO/TC 309, Governance of Organisations.
These committees fall under the umbrella of ISO.
The various ISOs are:
1. ISO 32210: Framework for Sustainable Finance.
2. ISO 14007: Environmental costs and Benefits.
3. ISO 14008: Monetary valuation of environmental impacts.
4. ISO 14097: Assessing and reporting investments related to
climate change.
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ISO 32210:
It is of the utmost importance to move at a faster pace toward
a global economy that is more sustainable in order to achieve
the targets set for climate change and to bring activities into
alignment with sustainable development goals.
Without making significant adjustments in the financial
industry, it will not be possible to meet these objectives.

ISO 32210 "Sustainable finance":

Principles and guidance outline a set of guiding principles and
practices that are intended to assist financial institutions in
enabling positive environmental and social outcomes,
mitigating risk, and delivering sustainable value.
The objective of the standard is to provide assistance to
organizations in:
A) Activities geared toward contributing to long-term
sustainability goals are being transitioned.
B) Creating value by seizing the new investment opportunities
afforded by the ongoing transition in the global economy.
C) Improving investment portfolios' ability to generate long-
term financial returns while also minimizing their impact on
the environment.
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D) Identifying and mitigating risk.
E) Aligning the interests being pursued with the expectations
of the stakeholders.
Examples of ESG criteria include:
Environmental (E): Climate change, Natural resource depletion
and environmental degradation (including land use change,
habitat loss and species loss).
Social (S): Working conditions (including slavery and child
labour), local communities, conflict, health and safety,
employee relations and diversity.
Governance (G): Executive pay, bribery and corruption,
political lobbying and donations, board diversity and structure,
and tax strategy.
ISO 14008:
An organization's interactions with the environment are
referred to as its environmental aspects, while these
interactions' effects are referred to as its environmental
impacts. A favourable or negative influence is possible.
The projects backed by green finance and the businesses
involved in these processes each have aspects and
repercussions that are present across the whole finance cycle.
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In order to comprehend and then manage the risks and
opportunities connected with them in a cost-effective manner,
it is crucial to establish the monetary value.
The first globally accepted reference for determining the
economic value of an organization's environmental impacts
and aspects is ISO 14008, Monetary valuation of
environmental impacts and related environmental aspects.
It utilises a coordinated collection of technologies to combine
economic studies with environmental management in a
standardised manner.
To make its information more accessible to users rapidly, the
standard, created by ISO TC 207, employs the vocabulary of
ISO 14001 on environmental management systems. Why then
do we require ISO 14008? Simply said, in order to evaluate
risks and possibilities, firms must be aware of all costs and
externalities.
The standard also aids in the formulation of policies like green
taxes, compensation schemes, and subsidies that take into
account the present or potential cost of environmental harm.
Additionally, it offers a crucial tool for the expanding fields of
disclosure and reporting today.
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ISO 14007:
Additional guidance for calculating environmental costs and
benefits is provided by ISO 14007, Environmental
management.
ISO 14007 offers instructions on how to use those values for
cost and benefit analyses after organisations have determined
monetary values for environmental consequences.
The concept of dependencies, or how organisations depend
on the environment, is also explained in this standard.
The commercial case for evaluating an organization's reliance
on "natural capital" is becoming more compelling due to
increasing resource scarcity and deteriorating ecosystem
services.
Natural Capital can be defined as the world's stocks of natural
assets which include geology, soil, air, water and all living
things.
Companies will choose greener investments and build more
sustainable enterprises when they recognise the obvious
environmental advantages of the natural capital they rely on.
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ISO 14097: Risks and opportunities brought about by climate
change can have an impact on the performance of financial
institutions and the businesses they invest in.
In light of this, a fresh framework for assessing how climate
change may affect funding and investment has just been
created.
Organizations reporting in accordance with the suggestions of
the Task Force for Climate-related Financial Disclosures will
benefit greatly from ISO 14097, Greenhouse gas management
and related activities - Framework including principles and
requirements for assessing and reporting investments and
financing activities related to climate change.
The standard accomplishes three goals:
1. Aid finance managers and investors in identifying
opportunities and dangers associated to climate change.
2. Provide the information and data required to make
defensible decisions to reduce or eliminate climate-related
risks and to seize opportunities.
3. Facilitate the shift to a low-carbon economy with fewer
risks to the climate and spur more investment in the prospects.
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ABFM MODULE - D
Chapter 24: GREEN AND SUSTAINABLE FINANCING (PART-II)

What we will study?

*All about building Green Finance?
*What are the different Instruments to fund Green Financial
Project?
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BUILDING GREEN FINANCE:
ISO 14000, released in August, 2022, provides guidance on
identifying and assessing environmental aspects and impacts,
and performance criteria for projects, assets and activities.
The intent is to support the development of green finance by
assisting borrowers and financiers to take into account the
environmental aspect and impacts or environmental
performance of the project,
The guidance is applicable to individual, corporate or public
entities providing or seeking green finance, regardless of size.
A framework to determine relevant environmental criteria
supported by credible information is presented.
The objective of applying these criteria is to avoid, minimize,
reduce and mitigate adverse environmental impacts and risks,
as well as to identify opportunities to optimize environmental
performance.
Key concepts involved in identifying and assessing relevant
environmental criteria, including significance, context and
materiality as well as "do no significant harm", are examined.
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Instruments to fund Green Financial Project:
Governments, charities, banks, and private investors can
finance "green" initiatives using a variety of methods.
They can be divided into four categories: loan, equity, and
risk-mitigation products.
Global foundations and NGOs typically provide project-
specific grants, such as for decentralised solar mini-grids for
rural electrification.
Credit enhancement guarantees and insurance products are
risk-mitigation tools.
In guarantees, government agencies, development financial
institutions (DFIs), or financial services firms can assure
lenders that payment will be made in full or in part in the
event that the borrowers default.
Environmental risk liability coverage and environmental loss
insurance are features of green insurance products.
The DFIs may offer early-stage seed money to launch a project
under equity.
Additionally, for an ownership stake in such ventures or assets,
venture capitalists and private equity funds may invest, or the
general public may do so through initial public offerings (IPOs).
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Green loans and green bonds are the two main categories of
debt securities.
Only banks offer green loans, but a wider range of investors
can purchase green bonds, commonly referred to as climate
bonds.
In a bond, the issuer serves as the borrower, while the holder
serves as the lender.
The lenders receive a return in the form of fixed interest
payments.
Green bonds are the green financing product that has gained
the most interest.
A global non-profit group called the Climate Bonds Initiative
(CBI) reports that the issuance of green bonds and loans
worldwide surged 51% year over year to reach $257 billion in
2019.
According to the Economic Survey 2019-20, the first half of
2019 saw $10.3 billion in green bond transactions in India, one
of the Asian markets with the quickest rate of growth for
green bonds.
As previously mentioned, green bonds are similar to ordinary
bonds, except that the revenues are designated towards
particular "green," or climate-friendly, projects or assets.
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Organization-guaranteed bonds, asset-backed bonds, and
hybrid-bonds are the three main categories of green bonds,
according to the source of repayment for the lenders and the
available remedies in the event of a default.
Going above and beyond the innovative sustainability-themed
capital market products such as Green Bonds or Social Impact
Bonds, India is moving in the direction of creating a Social
Stock Exchange (SSE), which will fall under the regulatory
ambit of SEBI and will be used for the raising of capital by
Social Enterprises working toward the realisation of a social
welfare objective.
The Securities and Exchange Board of India (SEBI) established
a Working Group (WG) on Social Stock Exchanges in
September 2019.
On the first of June in 2020, the Working Group handed the
Report, provided an overview of its vision and made a number
of recommendations.
One of these recommendations calls for the participation of
non-profit organisations (NPOs) and for-profit enterprises
(FPEs) on SSE, with both types of organisations agreeing to
abide by a set of minimum reporting requirements.
Green bonds are a type of financial instrument that are issued
by a company in order to raise money from investors.
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The funds that are raised via the sale of green bonds are then
utilised for the purpose of financing 'green' projects.
Green bonds are an efficient means of raising financing for
renewable energy projects while simultaneously achieving the
environmental goals of investors and the climate goals of the
Government of India.
Green bonds are a global phenomenon that was first
introduced in the United States.
In 2017, the Securities and Exchange Board of India (SEBI)
issued guidelines on green bonds.
These guidelines included the requirement that green bonds
be listed on Indian stock exchanges.
This was done to encourage the issuing of green bonds in
India.
Passive and retail investors are now able to invest in "green"
companies thanks to the creation of green indexes such as
S&P BSE CARBONEX (2012), MSCI ESG India (2013), and S&P
BSE 100 ESG Index (2017).
All of these indices were introduced in their respective years.
In India, as of the 24th of December in the year 2020, eight
ESG mutual funds have been established.
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In the year 2020, the total amount of green bonds that have
ever been issued worldwide surpassed the one trillion dollar
mark.
Following China in terms of size, the green bond market in
India is the second largest among emerging markets.
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ABFM MODULE - D
Chapter 24: GREEN AND SUSTAINABLE FINANCING (PART-III)

What we will study?

*All about Green Bond?
*Types of Green Bond?
*All about Green Masala Bond?
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About Green Bonds:
Green bonds are a type of unsecured debt instrument that is
used to finance green projects that provide benefits to the
environment.
The commitment of an issuer of a green bond to use the
proceeds from the sale of the bond to finance or re-finance
"green" projects, assets, or business activities distinguishes a
bond from a standard bond.
Green bonds can be issued up front by either public or private
actors in order to raise capital for projects or for the purposes
of re-financing.
This results in increased lending and frees up capital for other
uses.
In the same manner as traditional bonds, green bonds involve
the issuing entity providing a guarantee that the amount
borrowed will be repaid over a predetermined amount of
time and compensating the creditors through the issuance of
a coupon that bears either a fixed or variable interest rate.
It is possible to structure them as asset-backed securities that
are linked to particular green infrastructure projects.
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However, to this day, they have been issued most commonly
in the form of "use-of-proceeds" bonds, which are designed to
raise capital that will be distributed across a portfolio of green
projects.
The momentum of continued issuance and market demand
has led to a growing consensus on what constitutes a green
bond, and progress has been made on standards and criteria
for what constitutes a green project or activity. Both of these
factors have contributed to the growth of the green bond
market.
In order to develop a credible green bond market and prevent
"green washing" , green bond project definitions and
requirements for disclosure of the use of proceeds are the
foundational elements.
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The various types of bonds are explained below:
a) Organization-guaranteed Bonds:
Not only the financed asset, in this case the solar farm, but
also the issuing organisation itself is taken into consideration
when determining the credit-worthiness of an organization-
guaranteed bond, which is also referred to as a general
obligation bond.
The farm is recorded as an asset on the issuer's books, and
repayment to the lenders is made from all of the issuer's
sources of cash flow, not only those that are directly
attributable to the farm.
Bonds like these could be issued by the government, public
institutions, or even private corporations.
One or more of these bonds may also be convertible, which
means that the lenders may, at a later time, exercise their
option to transform the bond into stock.
b) Asset-Backed Bonds:
When it comes to asset-backed bonds, the issuer's
creditworthiness is not dependent on any of the issuer's other
cash flows; rather, it is only related to the predicted revenue
from the solar farm.
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The asset of the solar farm is moved into a distinct entity,
which is subsequently referred to as a special purpose entity
(SPE) or a special purpose vehicle (SPV).
Only this asset is held by this particular entity.
Only the revenue that is made from this farm will be used to
make the payments that are owed to the lenders.
c) Hybrid Bonds:
There are two different ways that a hybrid bond, which is a
dual-recourse bond and is also known as a covered bond,
might be formed.
In the first approach, the farm is listed as an asset owned by
the issuer; however, in the event of a payment default, the
lender will take ownership of the farm.
furthermore, if the value of the farm is insufficient to cover
the default, the lender will also have a claim on the issuer's
other assets.
In the second approach, the farm is held by a special purpose
entity (SPE), and in the event of a default, the lender receives
ownership of the SPE's assets.
In a manner analogous to the first approach, the lender has
the option of staking a claim on the issuer's additional assets
in the event that the value of the assets is insufficient.
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Framework for Green Bond Issuance:
The Green Bond Principles (GBP) are a collection of optional
process principles that were established by the International
Capital Market Association.
Their purpose is to increase the transparency and integrity of
the green bond market around the world.
They advise the issuers to construct a framework for the
process of issuing green bonds, which should include four
essential components.
The first of these is the usage of profits in situations when the
GBP has established criteria for determining which types of
initiatives are qualified to be labelled as "green."
The second approach is a technique of evaluating and
selecting projects, in which the issuers are required to
describe the environmental objectives of the project as well as
the risks that are expected to be incurred and the strategies
that will be used to mitigate those risks.
The third component is the management of the proceeds,
which requires the issuers to store the money in a sub-
account or a separately managed account and to keep the
lenders updated on the movement of the money.
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Last but not least, the GBP discusses different techniques for
providing transparent reports to the lenders, including the
impact that the project will have.
The Climate Bonds Initiative has released a set of voluntary
guidelines and a certification scheme in order to promote
investments that are truly linked with the goal of tackling
climate change.
The goals of these initiatives are to increase investor
confidence and scale the green bonds market.
At the moment, certificates can be obtained for bonds in the
building, energy, and transport and water utility sectors.
Beginning in 2015 with Yes Bank, a number of public
institutions, banks, and private firms in India have issued
green bonds.
The vast majority of the bonds have some sort of connection
to the energy industry.
Bonds that are issued outside of India but are denominated in
Indian Rupees rather than the local currency have been issued
by Indian corporations.
These bonds are known as Green Masala Bonds.
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In this scenario, the investors are the ones who are
responsible for bearing the risk of the fluctuating currency
exchange rate.
The pandemic in 2020 had a negative effect on the issuance of
green bonds, which are fixed-income financial instruments
used to finance projects that have positive environmental and
or climate benefits.
Green bonds are used to finance projects that have positive
environmental and or climate benefits.
However, it was able to recover in 2021, reaching levels higher
than those recorded prior to the pandemic and recording an
increase of 116.9% from the $3.1 billion that was raised in
2019.
India is now the sixth largest country in the Asia-Pacific region
in terms of the total amount of green bonds issued in 2021.
According to statistics provided by the Climate Bonds
Initiative (CBI), the Asia-Pacific region issued a total of $126
billion worth of green bonds in 2021.
The largest amount was issued by China, which was $68 billion,
greater than the total value issued by the other APAC nations
combined.
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ABFM MODULE - D
Chapter 24: GREEN AND SUSTAINABLE FINANCING (PART-IV)

What we will study?

*What are the benefits of Green Investment or Green Bonds?
*What are the advantages and disadvantages of Green
Investments or Green Bonds?
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Benefits of Green Investment or Green Bonds:
The green bond market may provide a number of significant
advantages for environmentally responsible investment,
including the following:
a) Providing an additional source of financing for
environmentally friendly projects:
Given the massive amount of money that needs to be
invested in environmentally friendly projects, bonds are one
form of financing that is suitable for doing so.
In light of the immense green investment needs, traditional
sources of debt financing will not be sufficient.
As a result, there is a need to introduce new means of
financing that can leverage a wider investor base, including
institutional investors (such as pension funds, insurance
companies, and sovereign wealth funds) that manage more
than USD 100 trillion in assets worldwide.
In addition to green lending done by banks and green equity
financing done by investors, the growth of the green bond
market may be able to provide an additional source of funding
in the future.
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b) Making it possible to finance more environmentally friendly
projects over the long term by reducing the maturity
mismatch:
Due to the short maturity of their liabilities and the absence
of instruments for hedging duration risks, banks in many
countries are unable to provide long-term green loans to
customers.
This poses a problem for the financial sector as a whole.
Businesses that can only get access to short-term bank credit
face additional risks when it comes to refinancing long-term
environmentally friendly projects.
These limitations on long-term green financing may be
alleviated if banks and corporations were allowed to issue
green bonds with medium- and long-term maturities
specifically for environmental projects.

c) Improving the issuers' reputations and providing more

transparency regarding environmental strategy:
The issuance of a green bond is an efficient method for
developing and putting into action a credible sustainability
strategy to present to investors and the general public.
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This is accomplished by elaborating on the manner in which
the proceeds raised will contribute to a pipeline of concrete
environmental projects.
Because green bonds are an efficient way for an issuer to
demonstrate its dedication to enhancing environmental
sustainability, they have the potential to assist in the
enhancement of an issuer's reputation in conjunction with
internal policies for the promotion of sustainable
development.
d) Offering potential cost advantages:
It is possible that, once the market attracts a wider investor
base both domestically and internationally, a better pricing
structure for green bonds as compared to regular bonds may
emerge provided that demand is sustained.
However, the cost advantage is not yet evident in the current
nascent green bond market because the market has not yet
had enough time to develop.
According to the Climate Bonds Initiative (CBI), a number of
issuers report an additional benefit in the increased speed of
"book building," which refers to the process of generating,
capturing, and recording investor demand for a bond issue.
This, in turn, translates into reduced costs for marketing and
road shows.
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In some countries the reduction of tax rates, interest rate
subsidies, and credit guarantee programmes are being
discussed as potential options for further lowering the funding
costs for green bonds.
The United States has already conducted experiments in this
field with green property bonds and municipal bonds.

e) Facilitating the "greening" of traditionally "brown" sectors:

The benefits of the green bond market can function as a
transition mechanism that encourages issuers in less
environmentally-friendly sectors to take part in the green
bond market (provided that they ring-fence proceeds for
green projects) and also to reduce their environmental
footprint by engaging in green investment activities that can
be funded via a green bond.
This can be accomplished through the benefits of the green
bond market that were discussed above.
This is in addition to mandatory policies pertaining to the
"real economy," which lead to changes in business models
(such as carbon pricing, waste reduction and recycling targets,
policies to promote the circular economy, etc.)
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f) Making newly developed environmentally friendly financial
products accessible to investors who are committed to the
long term:
Institutional investors such as pension funds, insurance
companies, sovereign wealth funds, and other institutional
investors with a special preference for sustainable
(responsible) investment and long-term investment are
looking for new financial instruments to help them achieve
their investment goals.
These investors are looking to invest responsibly and for the
long term.
Green bonds give these investors access to such products and
offer many other investors a way to diversify the holdings in
their portfolios.
Green bonds also help the environment.
Investors who are looking for green opportunities in a vast
ocean of bonds can cut down on their "search costs" with the
help of the green label, which is a discovery mechanism.
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Advantages and Disadvantages of investing and issuing Green
Bonds:
The advantages of investing in green bonds are as under:
a) Investors can balance financial and environmental returns.
b) Meets Environmental, social, and corporate governance
(ESG) /green investing requirements.
c) Improved risk assessment in an opaque fixed income
market through proceeds reporting.
d) Recognized by UNFCCC as non-state actor "climate action".
e) Private interaction with issuers on ESG topics relevant to
green bond issuance results in more thorough credit profiles
of borrowers.
f) Added openness of proceeds use and reporting
requirements gives green bond investors an informational
edge (on spending efficiency, project specifics and updates,
impact performance).
g) Tracking and reporting proceeds utilisation improves
internal governance and the issuer's credit quality.
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The disadvantages of investments in green bonds are:
a) A market that is still in its infancy and is quite small, with
bond amounts that are relatively low.
b) The absence of universal criteria can increase the potential
for confusion, as well as the damage to one's reputation if the
green integrity of a bond is called into question.
c) There is a restricted amount of room for the legal
enforcement of green integrity.
d) A lack of uniformity can result in research that is more
difficult to understand and a requirement for further due
diligence that is not always met.

The advantages of issuing green bonds are as under:

a) Presenting and carrying out the issuer's approach to
environmental, social, and governance concerns.
b) Strong demand from investors might result in
oversubscription, which opens up the possibility of increasing
the amount issued.
c) There is evidence of an increase in investors who "buy and
hold" green bonds, which may result in decreased bond
volatility on the secondary market.
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d) Advantages to one's reputation (for example, marketing
can promote the issuer's support for green investment and
the issuer's green credentials).
e) Clarification of the sustainability plan and increased
confidence in its validity.
g) The ability to take advantage of "economies of scale," given
that the majority of issuance expenses are associated with the
process of setting up the system.
The disadvantages of issuing green bonds are:
a) The one-time and continuing transaction costs associated
with labelling and the accompanying administrative,
certification, reporting, verification, and monitoring
requirements.
b) The risk to a bond's reputation if its "green credentials" are
called into question.
c) Investors have the right to claim for damages in the event
of a "green default," which occurs when an issuer violates the
terms of an agreement even though the bond was paid in full.
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ABFM MODULE - D
Chapter 25: SPECIAL PURPOSE ACQUISITION COMPANIES
(SPAC) (PART-I)

What we will study?

*What is SPAC?
*What are the advantages of SPAC?
*What are the disadvantages of SPAC?
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INTRODUCTION:
A company that does not carry any commercial operations
and is incorporated purely for the purpose of raising capital
through an Initial Public Offering (IPO) or is incorporated for
the goal of acquiring or merging with an existing company, is
known as a special purpose acquisition company (SPAC).
A company, structured in this way, enables investors to
contribute money to a fund, which is subsequently used for
the acquisition of one or more unnamed enterprises, which
are only revealed after the IPO.
They first came into existence in the 1980s, during a time
when they were poorly regulated and, as a consequence,
investors lost money due to fraud.
Blank Cheque Companies is another name for these
businesses.
They have seen a rise in popularity just recently.
According to reports, in the year 2020, about 250 SPACs were
established, most of which were in the United States, and $80
billion was invested.
Approximately 600 SPACs initial public offerings(IPOs) took
place in 2021.
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The Indian regulatory framework does not allow the creation
of blank cheque companies.
The Companies Act, 2013 stipulates that the Registrar of
Companies can strike off a company if it does not commence
operations within a year of incorporation.
Recently, ReNew Power, an Indian company, had a business
transaction for combining with a company situated in the
United States, called RMG Acquisition Corporation II, which is
a SPAC or a blank cheque company.
After the transaction, the combined company was named
ReNew Energy Global PLC and was publicly listed on NASDAQ.
This is the first major overseas listing of an Indian company via
the SPAC.
Videocon d2h and online travel agency Yatra earlier had SPAC
deals.
Because of the flexibility of SPACs to attract industries based
on changing market fundamentals and also because SPAC IPO
investors have the downside protection of redemption
decisions, SPACs have recently become very popular as a
result of the market disruption caused by the Covid-19
pandemic.
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In 2019, there were just 59 new SPACs introduced to the
market with an investment of $13 Billion.
SPAC investors can be private equity funds or even well-
known figures in the public eye.
They have a deadline of two years to successfully complete a
purchase, if they miss it, they will be required to repay the
money to the investors.
SPACs are organisations that are formed by investors or
sponsors who have experience in a specific industry or
business sector with the purpose of pursuing business
opportunities in that field.
In most cases, the investors have at least one acquisition
target in mind at the time of the company's establishment.
However, this information is not disclosed at the time of the
IPO in order to streamline the disclosure process.
Investors in an IPO do not have any information about the
company in which they will ultimately be investing.
Before issuing their shares to the general public, SPACs must
first get underwriters and institutional investors.
Underwriting is the process through which an individual or
institution takes on financial risk for a fee.
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The money that are collected by SPAC are placed in a trust
account that earns interest on the funds.
These funds can only be used for acquisitions or, in the event
that the SPAC is dissolved, for the purpose of returning money
to investors.
In a select few instances, the interest that is accrued from the
trust account may be applied toward the aim of providing the
SPAC with working capital.
After an acquisition has been completed, a SPAC will typically
apply to be listed on one of the stock exchanges.
Not every SPAC will be successful and accomplish their
milestone goals, in fact, some of them will fail entirely,
causing investors to lose their investment capital.
Despite this, they plan to continue operating in the sector
since they provide investors and targets new alternatives for
funding that are in direct competition with later stage venture
capital, private equity, direct listing, and the traditional IPO
process.
Today, the majority of SPACs place an emphasis on companies
that are causing disruption in consumer, technology, or
biotech areas.
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The vast majority of these businesses are extremely
speculative, have massive capital requirements, and are able
to provide very little assurance on their revenue and
profitability in the near term.
It's possible that India will launch its own "blank cheque firm"
in the near future.
The market regulator SEBI is likely to permit the listing of
Special Purpose Acquisition Companies, much as they do in
the United States.
The Securities and Exchange Board of India (SEBI) is reported
to have informed the Parliamentary standing committee,
according to news reports published in May 2022, that “The
sub group of the principal market advisory committee (PMAC)
is in the process of finalising the report on SPACs."
After that, a consultation document on the topic that invites
feedback from the general public might be distributed.
Consultation with the PMAC is required before any actions
can be taken respecting the SPACs framework.
The company law committee report of the Ministry of
Corporate Affairs (MCA) for February 2022 advocated the
introduction of an enabling provision to recognise SPAC under
the Companies Act and allowing a SPAC formed in India to
trade on domestic and global markets.
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ADVANTAGES OF SPAC:
When compared to an initial public offering (IPO), going public
through a SPAC merger has the following primary advantages:
a) Speedier Execution:
A SPAC merger typically takes place within three to six months
on average, but an initial public offering (IPO) often takes
between twelve and eighteen months to complete.
b) Discovery of the price up front:
While the price of your IPO will be determined by the state of
the market at the time of listing, you will negotiate the price
with the SPAC before the transaction is finalised.
This is a far more favourable strategy in an unstable market.
c) The possibility of raising additional capital:
SPAC sponsors will raise debt or PIPE funding in addition to
their initial capital in order to not only finance the transaction
but also to fuel growth for the combined company.
PIPE stands for "private investment in public equity".
Private investment in public equity (PIPE) is when an
institutional or an accredited investor buys stock directly from
a public company below market price.
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Even in the event that certain SPAC investors decide to cash
out their shares, it is still expected that the transaction would
be successfully concluded thanks to the backstop debt and
equity.
What is back stop?
A back stop is the act of providing last-resort support or
security in a securities offering for the unsubscribed portion of
shares. When a company is trying to raise capital through an
issuance, it may get a back stop from an underwriter or a
major shareholder, such as an investment bank, to buy any of
its unsubscribed shares.
d) Reduced Marketing Cost:
Decreased costs associated with marketing as a result of the
fact that a SPAC merger is not required to attract interest
from investors in public exchanges by means of a
comprehensive roadshow (although raising PIPE involves
targeted roadshows).
e) Ease of access to specialised operational knowledge:
The individuals that sponsor SPACs are typically seasoned
business and financial experts. They can provide their
managerial knowledge by drawing on their extensive network
of contacts, or they can volunteer to serve on the board
themselves.
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The following is a list of the additional benefits:
1. It shortens the time it takes for a company to become
publicly traded.
2. There is less regulatory oversight of SPACs.
3. When compared to an IPO, the process of going public with
a high-leverage company is made much simpler by the
availability of SPACs.

DISADVANTAGES OF SPACs:
When compared to an initial public offering (IPO), going public
via merger of SPACs suffers from the following disadvantages:
a) Inability to Track Use:
An investor in a SPAC IPO has no idea about where his funds
will be invested and may lose his investments because there is
doubt on whether its promoter will be successful in acquiring
or merging with a suitable target company in the future.
The narrow degree of oversight from the regulators, coupled
with an absence of disclosure from the SPAC, means that the
retail investors have the risk of hampering with an investment
that could be overhyped or occasionally even fraudulent.
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b) Poor Returns:
Returns may be below the expectations from the SPACs when
the initial hype has worn off.
Goldman Sachs strategists noted in September 2021, that out
of the 172 SPACs that had closed the deal since the start of
2020, the median SPAC had outperformed the Russel 3000
index from its IPO to deal announcement, but in the six
months after the deal closure, the Median SPAC had
underperformed the Russel 3000 index by 42% points.
c) Low Market Cap:
According to Renaissance Capital Strategist, nearly 70% of
SPACs that had their IPO in 2021 were trading below their $10
offer price as of Sept 15, 2021.
This desolate performance could mean that the SPAC Bubble
might be in the process of bursting.
d) Increasing Regulatory Oversight:
It is evident, that SPACs have lost some of their dazzle in late
2021 and early 2022 due to increased regulatory oversight and
less than exceptional performance.
e) Increased Disclosure Norms:
New accounting regulation issued by the Securities and
Exchange Commission (SEC) in April 2021 has led to a drop in
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the new SPAC filings in the second quarter as compared to the
first quarter.
f) Shareholding dilution:
SPAC sponsors typically own a 20% stake in the SPAC through
founder shares or "promote" as well as warrants to purchase
additional shares.
This is in addition to the warrants that allow them to purchase
additional shares.
SPAC sponsors also benefit from an earnout component,
which enables them to receive more shares when the stock
price achieves a specified target over a certain time frame.
However, this could result in further dilution for the investors
who initially invested in the SPAC.
Earn-out: A provision written into some financial transactions
whereby the seller of a business will receive additional
payments based on the future performance of the business
sold.
g) Deficiency in available capital:
This can happen due to the possibility of redemption, Initial
SPAC investors may choose to redeem their shares.
In the event that redemptions are higher than anticipated, the
availability of cash will become uncertain, which will force
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SPACs to seek PIPE financing in order to fill the resulting
shortfall.
h) Compact Timeframe for Compliances:
Although the SPAC sponsor may offer assistance during the
merger process, target company is typically responsible for
the bulk of the preparation for required financials in the SEC
filings as well as the establishment of public company
functions such as investor relations and internal controls
within a much shorter timeframe than in an IPO.
i) Narrow Scope for Financial diligence:
The SPAC process does not require the stringent due diligence
of a traditional IPO, which could lead to potential
restatements, incorrectly valued businesses, or even lawsuits.
This is because the scope of the financial diligence performed
is narrower.
j) Absence of underwriting and comfort letter:
In a traditional initial public offering (IPO), the underwriter is
responsible for ensuring that all of the regulatory
requirements are met, however, because the target company
in a SPAC is already public, it does not have an underwriter.
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ABFM MODULE - D
Chapter 25: SPECIAL PURPOSE ACQUISITION COMPANIES
(PART-II)

What we will study?

*All about SPAC formation and timeline?
*All about SPAC merger?
*Who are stakeholders of SPAC?
*What are characteristics of SPAC?
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SPAC FORMATION & TIMELINES:
The initial public offering (IPO) of a special purpose acquisition
company (SPAC) is typically predicated on an investment
thesis that is concentrated on a particular industry and
geographical region, such as the intention to acquire a
technology company in North America, or the experience and
history of a sponsor.
After the initial public offering (IPO), the proceeds are
deposited into a trust account, and the SPAC normally has
between 18 and 24 months to find and finalise a merger with
a target firm.
This process is frequently referred to as de-SPACing.
In the event that the SPAC is unable to accomplish a merger
within the specified amount of time, the SPAC will be
liquidated, and the profits from the IPO will be distributed
back to the public shareholders.
The public shareholders of the SPAC have the option to vote
against the deal once a target firm has been found and an
announcement of a merger has been made.
Alternatively, they may choose to redeem their shares.
If the SPAC needs additional finances to complete a merger, it
may choose to issue debt or additional shares through a
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transaction known as a private investment in public equity
(PIPE) agreement.
Alternatively, the SPAC may sell additional assets.

THE SPAC MERGER:

After its formation, the SPAC will normally be required to seek
the permission of shareholders for a merger, and it will also
prepare and file a proxy statement (or a joint registration and
proxy statement on Form S-4 if it intends to register new
securities as part of the merger).
This document will contain a description of the proposed
merger as well as aspects pertaining to governance, all of
which will be seeking approval from the shareholders.
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Additionally, it will include a plethora of financial information
about the company that is the target of the merger, such as
proforma financial statements demonstrating the effects of
the merger, historical financial statements, and
management's discussion and analysis (MD&A).
The merger will be finalised and the target business will
transition into a publicly traded firm as soon as shareholders
provide their consent to the SPAC merger and all regulatory
issues are resolved.
Within four business days of the closing, a Form 8-K must be
filed with the United States Securities and Exchange
Commission (SEC).
This Form 8-K, which is commonly referred to as the Super 8-K,
must contain information that is equivalent to what would be
required in a Form 10 filing of the target company.
STAKEHOLDERS:
Typically, special purpose acquisition companies (SPACs) have
three different stakeholder groups: sponsors, investors, and
targets.
Every one of them is unique in the demands, worries, and
viewpoints that they have.
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Sponsors:
The process of creating a SPAC is started by sponsors.
Their contributions to SPAC, which take the form of non-
refundable fees to bankers, attorneys, and accountants, are
intended to cover the costs of running the organisation.
In the event that the Sponsor is unable to form a combination
within a period of two years, the SPAC will have to be
dissolved, and the investors will be entitled to a full refund of
their money.
Therefore, sponsors run the risk of losing their risk capital in
the event that the transaction is unsuccessful.
However, if the transaction is successful, sponsors receive the
sponsor's shares in the combined corporation, which
frequently amount to as much as 20% of the equity raised
from investors.
Example:
A sponsor establishes a SPAC with the intention of raising a
total of $500 million in capital and makes an initial investment
of approximately $7 million to $8 million to fund the
administrative costs of the enterprise.
These costs include underwriting, attorney, and due diligence
fees.
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At a price of $10 per share, the SPAC sells investors a total of
50 million shares.
Additionally, the sponsor purchases certain shares of the
company at a nominal price.
This purchase accounts for approximately 20% of the total
outstanding shares, or 12.5 million shares.
If the sponsor is successful in meeting the goal of completing
the merger within two years, then the founder's share will be
vested at the price of ten dollars per share, giving the stake a
value of one hundred twenty-five million dollars.
The only way for sponsors to be eligible for these awards is if
they have a powerful concept and are able to effectively
attract investors, locate a suitable target, and convince him of
the financial and strategic benefits of the business
combination.
In order to avoid losing the investors along the way, they will
need to discuss the parameters of the deal during the entire
process.
However, competition among sponsors for targets and
investors has heated up, which has led to an increase in the
possibility that a sponsor will lose both the risk capital it has
invested and the time it has invested.
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CHARACTERISTICS OF SPACS:
Once the public offering is complete, SPACs are often traded
on stock exchanges as units, or as distinct common shares and
warrants, depending on the structure of the offering.
Because of the liquidity in the trading market, investors have
the option of easily exiting their positions.
The corporation is obligated to provide the stockholders of
the target business with full disclosure, which must include
comprehensive audited financial statements and the terms of
the proposed business combination.
This is done to enable the stakeholders to make an informed
decision regarding whether or not they wish to approve the
business combination.
All of the stakeholders of the SPAC are given voting rights at a
shareholder meeting so that they can either agree to or
disagree with the proposed combination of the two
companies.
The SPAC is often led by an experienced management team
that includes at least three people who have previous
expertise in private equity, mergers and acquisitions, and
operating roles.
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In most cases, the management team of the SPAC is entitled
to receive 20% of the equity of the vehicle, excluding the
value of any warrants that may be issued.
Prior to the business merger, the management team did not
receive any cash compensation in the form of wages, finder's
fees, or other types of cash compensation.
In the event that the management team is unable to
successfully complete a business combination, they will not be
included in the distribution of assets that results from the
liquidation.
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ABFM MODULE - D
Chapter 25: SPECIAL PURPOSE ACQUISITION COMPANIES
(PART-III)

What we will study?

*All about SPAC Process?
*All about Capital Structure of SPAC?
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PROCESS:

When the SPAC obtains the funds through the IPO, the money
is placed in a trust and kept there for a predetermined
amount of time or until the acquisition is completed,
whichever comes first.
The Special Purpose Acquisition Company (SPAC) is obligated
to repay the funds to investors after deducting bank and
broker costs in the event that the planned acquisition is not
completed or the legal requirements are not yet complete.
A Special Purpose acquisition company is made up of
seasoned business leaders who are self-assured about their
reputation in the industry and the fact that they have the
knowledge necessary to assist them in locating a lucrative
company to purchase.
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When seeking financial backing from investors, the founders
of a company are the primary selling point.
The company's founders are the ones that contribute the
startup funding, and they stand to benefit financially from the
large interest in the purchased business.
After the company's founders have provided the initial money
and paid a minimal price for a portion of the company's stock,
the management team will approach an investment bank to
execute the initial public offering (IPO).
Both the investment bank and the management team will
collect a fee equivalent to around 10% of the IPO's total value.
If the business requires additional funding, the sponsors have
the option of lending the necessary money to the SPAC in the
form of a loan.
Due to the fact that the company has a shorter history and
lower revenues, the prospectus of the SPAC places more
emphasis on the investors.
The money obtained from an initial public offering (IPO) is
placed in a trust account until a private firm is selected as a
possible acquisition target.
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After successfully raising cash through an initial public offering,
the SPAC's management team has between 18 and 24 months
to find an acquisition target and successfully close on it.
The time period could be different depending on the company
and its history.
The target company's enterprise value at the time of
acquisition should represent at least 80% or more of the
trust's total assets.
Following the completion of the acquisition of the target
company, the founders of the new company will reap the
benefits of their ownership in the business, and the other
investors will receive equity interests proportional to the
amount of capital they contributed.
In the event that the acquisition of the target firm cannot be
completed within the allotted amount of time, the funds that
have been deposited into the trust account will be distributed
back to the investors.
Before the transaction is finalised, it is against the rules for
the management team to collect their salary.
In order to fund a portion of the purchase price for the
business combination, the SPAC will first organise committed
debt or equity financing, such as a Private Investment in
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Public Equity (PIPE) commitment, prior to signing the
acquisition agreement.
Afterwards, it will declare publicly both the acquisition
agreement and the committed finance.
After the acquisition has been announced, the SPAC is
required to either conduct a tender offer process or hold a
mandatory vote of the shareholders.
In either case, the investors will be given the right to return
their public shares to the SPAC in exchange for cash that is
approximately equivalent to the IPO price paid for those
shares.
The business combination will be carried out if the
shareholders provide their consent to the transaction, the
financial requirements are met, and all other conditions
outlined in the purchase agreement are satisfied.
This will result in the formation of a publicly traded operating
company as a result of the combination of SPAC and the
target firm.

SPAC CAPITAL STRUCTURE:

To raise the necessary funds to finish the acquisition of a
private company, a SPAC typically conducts an IPO.
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The funds are often gathered from institutional and retail
investors and are kept in a trust account.
In exchange for their investment, investors get units of SPAC,
each of which contains a share of common stock and a
warrant to buy more shares at a later time.
After the IPO, the units can be split up into warrants and
shares of common stock that can be sold on the open market.
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TRUST ACCOUNT:
In connection with the closure of the IPO, a sum equal to or
greater than 100% of the gross proceeds of the IPO is used to
finance the trust account, with roughly 95% of the funds
coming from the general public and 5% from the sponsors.
The money in the trust account is invested in government
securities, or it is kept as cash, to pay for the business
combination, the redemption of common stock under a
compulsory redemption offer, the payment of the deferred
underwriting discount, any transaction costs, and the
company's working capital following the De-SPAC transaction.
WARRANTS:
The warrants are purchased in their whole (or in a bunch) by
the sponsor, whereas the units offered for sale to the general
public often include only a portion of a single warrant.
In larger initial public offerings (IPOs) these days, the issuance
of one-third of the warrant is more prevalent, nonetheless,
the standard practise is to issue - half of the warrant.
In every circumstance, the entirety of the warrants can be put
to use.
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In most cases, the share price at the time of the first public
offering will serve as the basis for determining the strike price
of the warrant.
The public warrants are typically settled in cash, with the
investor being required to pay an amount equal to the
warrant's strike price in exchange for a share of the company's
stock.
On the other hand, the founder warrants are net settled,
meaning that the founder is not required to make a payment
in cash but rather receives a number of shares of stock with a
fair market value equal to the difference between the trading
price of the stock and the warrant's strike price.
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ABFM MODULE - D
Chapter 25: SPECIAL PURPOSE ACQUISITION COMPANIES
(PART-IV)

What we will study?

*All about DE-SPAC Process?
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DE-SPAC PROCESS:
The following procedures make up each stage of the De-SPAC
process:
● Requirements for Shareholder Approval.
● Founder Approbation Votes.
● Disclosure of Material on a Super 8-k Form.
● Redemption Offer.
Shareholder Approval:
The procedure of de-SPACing is quite similar to that of
merging two public companies, with the exception that the
buyer, in this case the SPAC, needs to get approval from the
shareholders.
On the other hand, voting by shareholders is not necessary for
stock exchanges.

Founder Vote Requirements:

At the time of the initial public offering (IPO), the founder
shareholders, also known as the sponsor or any other holders,
will make a commitment to vote in favour of the De-SPAC
transaction for any founder shares owned by them as well as
any public shares purchased during or after the IPO.
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Therefore, at least 20% of the outstanding shares of the SPAC
will be committed to voting in support of the De-SPAC
Transaction, and as a result, just 37.5% of the public shares
are necessary to accomplish the goal of the majority vote and
approve the transaction.
Redemption Offer:
SPACs are desirable because they give owners of public shares
the option to exchange those shares for a proportional share
of the profits stored in a trust account.
This is one of the reasons why public share ownership is
desirable.
The redemption offer will not be valid for public warrants
until such time as those warrants are either exercised,
exchanged, or otherwise voided in accordance with the terms
of a vote.
If the time limit to finish the SPAC transaction passes, and the
company wants to change its charter documents to allow for a
longer period of time to carry out the De-SPAC transaction,
then it will be required to redeem the public shares for their
proportional share of the amount that is held in the trust
account.
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If the De-SPAC deal does not go through, however, the money
will be returned to the public shareholders, but the public
warrants, founder shares, and founder warrants will all lose
their value and expire.
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ABFM MODULE - D
Chapter 25: SPECIAL PURPOSE ACQUISITION COMPANIES
(PART-V)

What we will study?

*All about IPO Agreement for SPAC?
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IPO AGREEMENTS:
The establishment of the SPAC as well as the initial public
offering (IPO) of the SPAC both involve the customary signing
of a series of contracts and other documents.
There are a few documents that are universal to all SPACs,
such as the registration rights agreement and the certificate of
incorporation.
The remaining documents are specific to SPACs and cannot be
found elsewhere.

Charter:
The SPAC Charter is the document that establishes the public
shares as well as the founder shares and includes an anti-
dilution modification to the conversion ratio for the founder
shares.
Additionally, it places limitations on the use of the money in
the trust account, limiting its applications to only the
repurchase of public shares and the determination of a
minimum size requirement for the business that would be
acquired in a De-SPAC transaction.
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Securities Purchase Agreement:
The Sponsor and the SPAC enter into a Securities purchase
Agreement, which provides for the issue of founder shares to
the Sponsor of the SPAC.
The number of founder shares is typically set at 25% of the
total amount of publicly traded shares that are initially
registered on the registration statement.
However, the number of founder shares may be decreased or
increased through a stock split, dividend, or forfeiture in order
to size the founder shares to the initially agreed upon
percentage of 25%.

Warrant Agreement:
The SPAC and the transfer agent both sign the warrant
agreement, which outlines the parameters of the warrant and
must be done so before the warrant may be issued.
The warrant specifies that the SPAC will be required to comply
with an obligation to register the issuing of public shares in
the event that the public warrants are exercised.
To change the conditions of the warrant agreement, approval
is required from 50% of the warrant holders.
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Promissory Note:
With the funds raised through the initial public offering (IPO)
as well as the sale of founder shares and founder warrants,
SPAC is able to cover all of the costs associated with putting
on the offering as well as organising the offering.
The legal fees, travel and road show fees, accounting fees,
insurance premium, and other incidental charges are included
in these costs.
Because the SPAC does not have adequate cash to pay off
such expenses prior to the completion of the IPO, the sponsor
agrees to engage into a promissory note with the SPAC in
order to lend funds to the SPAC in the form of a loan until the
completion of the SPAC's first public offering.
Sponsor Constituent Document:
Often, a new limited liability company is established for the
sole purpose of acting as the sponsor for the special purpose
acquisition company (SPAC).
In the constituent documents, the owners of the sponsors put
their relationship with one another and their relative
participation in the SPAC in writing.
For example, they specify the proportionate amount of the
founder warrant purchase price that each will fund as well as
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their economic ownership of the founder warrants and
founder shares.
Letter Agreement:
The SPAC reaches a letter agreement with its officers,
directors, and sponsor before moving forward with the
process.
The letter agreement may include a lock up agreement, an
indemnification from the sponsor towards SPAC for certain
claims that may be made against the trust account, a voting
agreement obligating the officer, directors, and sponsor to
vote their founder shares and public shares, if any, in favour
of the De-SPAC transaction.
An obligation to forfeit founder shares to the extent that
green shoe is not exercised in full, and an agreement to not
sponsor other SPACs until the De-SPAC transaction has been
completed.
Green Shoe option: A green shoe option is a provision in an
IPO underwriting agreement that grants the underwriter the
right to sell more shares than originally planned.
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Registration Rights Agreement:
For the benefit of the sponsor and any other holders of
founder shares and founder warrants, the SPAC enters into a
registration rights agreement granting the sponsor and such
other holders broad registration rights with respect to the
founder shares, founder warrants, and any other equity held
by the sponsor and such other holders in the SPAC.

Private Placement Warrants Purchase Agreement:

In accordance with the terms of the Private placement
warrants purchase agreement that it has signed with the SPAC,
the sponsor has agreed to purchase founder warrants.
The financing of the purchase price occurs one business day
before the conclusion of the initial public offering (IPO), as
well as one business day before the closing of any exercise of
the green shoe option.
Securities Assignment Agreement:
The compensation for independent directors is provided by
the SPAC in the form of the cost-plus sale of founder shares.
Since the directors are not paid any fees in any other way, this
is the only method that they can receive their remuneration.
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Administrative Service Agreement:
A monthly charge is paid by the SPAC to the sponsor in
exchange for the sponsor providing utilities, office space,
secretarial support, and other administrative services in
accordance with an administrative service agreement
between the sponsor and the SPAC.
After the initial public offering (IPO), it will also sign into an
investment management trust agreement with the trustee.
This agreement will control the investment and release of the
funds that will be held in the trust account.