I am SSI. My business has crossed the stage of start up. It is into manufacture of plastic windows, doors, septic tanks and other storage units made of superior plastic. So far, I have been dealing with scheduled commercial banks. My rating has always been very good, if not excellent. Our credit rating ranges between B to A(+). The operations have been smooth too. 3 My background is marketing and the management team including me knows some aspects of technology too. My business consultant advises me to approach a VCF for funds due to the following reasons:

1. The management wants to expand into international markets, especially in South America and parts of Western Africa

2. Hence expansion is required in installed capacity besides a concrete marketing plan and resources for implementing this market plan

3. The consultant felt that the existing bankers would not be able to upscale the business in an effective way and would be conventional in their approach.

Hence after quite a good discussion, the consultant had prepared a full-fledged proposal for VC. He has also forewarned me about a VCF also being a part of management in any enterprise funded by them. I was sort of prepared for this purpose. Application has been made and discussions took place. The proposal approved by the VC was on our required lines of I.Rs. 100 million. The agreement was done and the VC started disbursement both as a conditional debt and equity in the ratio of 40:60. As a unit used only to commercial banks, I could not grasp the differences especially in operations so well. I was upset with the VC attending all the board meetings and raising questions for discussion any proposal or business decision that we bring to the table at the board meeting. Hence, I request you to explain the following in connection with my venture into venture finance

1. What is conditional loan that we are talking of here? Explain with examples. Is it the same as convertible equity related instruments?

2. Why is the rate of return expected by the VC on loans high in comparison with conventional lending by bankers?

3. In what way the VCF would be useful to me in our foray into new markets abroad to justify participative management?