NCERT Textbook - Resource Mobilization | Entrepreneurship Class 12 - Commerce PDF Download

 Page 1


 209 
UNIT –6: RESOURCE MOBILIZATION 
 
"Education is the manifestation of the perfection already in man." 
– Swami Vivekanand 
Learning objectives: 
The learner would be able to:  
? Understand the various sources of funds required for a firm 
? Raising funds through financial markets 
? Understand the method of floatation for new issue 
? Understand the relevance of stock exchange as a medium 
through which funds can be raised 
? Understand the role of SEBI 
? Explain the concept of angel investors 
? Explain the concept of venture capital 
? Explain the role played by IDBI, SIDBI, IFCI, NABARD, IIBI, SFC, TFCI, SIDC 
Case Study-I 
Twitter Tweets 
Twitter – named after the sound of chirping birds in 2006, has today 
established itself as a cultural touchstone, growing from a few thousand 
geeky users to more than 200 million today. 
Most of Twitter's revenue comes from advertising. Research firm eMarketer 
estimates that Twitter will generate $ 582.8 million in worldwide ad 
revenue for 2013, up from $ 288.3 million in 2012. 
Twitter's money making potential has minted the company with an estimated market value of $ 10 
billion, based on the appraisals of venture capitalists and other early investors who have been helping to 
fund the business so far. 
Aiming for a sustainable future, Twitter, as has been long expected, tweets "IT WILL GO PUBLIC". 
The law that allowed Twitter to file its initial IPO documents confidentially is called the Jumpstart Our 
Business Startups Act or JOBS; President Barack Obama signed the law in 2012. It is designed to make 
it easier for small businesses and startups to grow and create jobs. Do you understand the significance of 
all this......??? 
GOING PUBLIC COULD GIVE TWITTER THE MUSCLE TO BECOME THE NEXT FACEBOOK 
OR APPLE – says one analyst.  
The capital gains from going public will likely allow the company to make solid investments across the 
board in hiring, operations and acquisitions — THAT'S THE POWER OF FINANCE. 
Content 
? Angel Investor 
? Venture Capital 
Funds 
? Stock market- 
raising funds 
? Specialized financial 
institutions 
Page 2


 209 
UNIT –6: RESOURCE MOBILIZATION 
 
"Education is the manifestation of the perfection already in man." 
– Swami Vivekanand 
Learning objectives: 
The learner would be able to:  
? Understand the various sources of funds required for a firm 
? Raising funds through financial markets 
? Understand the method of floatation for new issue 
? Understand the relevance of stock exchange as a medium 
through which funds can be raised 
? Understand the role of SEBI 
? Explain the concept of angel investors 
? Explain the concept of venture capital 
? Explain the role played by IDBI, SIDBI, IFCI, NABARD, IIBI, SFC, TFCI, SIDC 
Case Study-I 
Twitter Tweets 
Twitter – named after the sound of chirping birds in 2006, has today 
established itself as a cultural touchstone, growing from a few thousand 
geeky users to more than 200 million today. 
Most of Twitter's revenue comes from advertising. Research firm eMarketer 
estimates that Twitter will generate $ 582.8 million in worldwide ad 
revenue for 2013, up from $ 288.3 million in 2012. 
Twitter's money making potential has minted the company with an estimated market value of $ 10 
billion, based on the appraisals of venture capitalists and other early investors who have been helping to 
fund the business so far. 
Aiming for a sustainable future, Twitter, as has been long expected, tweets "IT WILL GO PUBLIC". 
The law that allowed Twitter to file its initial IPO documents confidentially is called the Jumpstart Our 
Business Startups Act or JOBS; President Barack Obama signed the law in 2012. It is designed to make 
it easier for small businesses and startups to grow and create jobs. Do you understand the significance of 
all this......??? 
GOING PUBLIC COULD GIVE TWITTER THE MUSCLE TO BECOME THE NEXT FACEBOOK 
OR APPLE – says one analyst.  
The capital gains from going public will likely allow the company to make solid investments across the 
board in hiring, operations and acquisitions — THAT'S THE POWER OF FINANCE. 
Content 
? Angel Investor 
? Venture Capital 
Funds 
? Stock market- 
raising funds 
? Specialized financial 
institutions 
 210 
 
Business is full of surprises. As an entrepreneur one may face situations that can catch them off 
guard. Any situation has the potential to become, either a 'disaster' or an 'opportunity'. 
Whether running a home-based business or a mid-sized venture, the first thing required is 
money. One cannot imagine a world without money – every day's life and every activity of 
human being is dependent upon money.  
Even, in a bid to minimize losses, it is essential to prepare for the "unexpected" by arranging 
and protecting the resources. Thus, 'Finance' refers to funds or monetary resources needed by 
individuals, business houses and the government. The significance of finance in enterprise is 
elucidated like a lubricant to the process of production. It's one of the most important pre-
requisite to start an enterprise. Finance is the elixir that assists in the formation of new 
businesses, and allows businesses to take advantage of opportunities to grow and expand. Right 
from the very beginning i.e. conceiving an idea; finance is required to: 
a) Promote or establish the business 
b) Acquire fixed assets 
c) Make market investigations 
d) Develop product 
e) Keep men and machines at work 
f) Encourage management to make progress and create value. 
g) Expand, diversify, improve and grow. 
h) Be enough to meet unexpected/unplanned business expenses. 
 'Production', 'Marketing', and Financing', deemed as the most important factors for any 
business survival, rates "Financing" as the first because nothing can be done without money. 
Thus, the most critical element for success in business is 'Finance'. Before doing anything, an 
entrepreneur should clearly answer the following three questions: 
1) How much money is required? 
2) Where will money come from? 
3) When does the money need to be available? 
As regards, the money needed, it can be estimated by developing a statement of various assets 
required by the enterprise. Integral to total amount needed is to decide about its arrangement or 
sources. 
Case Study-II 
Source of finance 
MONEY IS ALWAYS A PROBLEM 
"Air India has defaulted on working capital loan interest payment of ` 200 crores due to the financial 
crisis that the airlines is facing", confirms Air India sources on 21
st
 May 2011. Air India has high-cost 
loans worth about ` 40,000 crores. 
Page 3


 209 
UNIT –6: RESOURCE MOBILIZATION 
 
"Education is the manifestation of the perfection already in man." 
– Swami Vivekanand 
Learning objectives: 
The learner would be able to:  
? Understand the various sources of funds required for a firm 
? Raising funds through financial markets 
? Understand the method of floatation for new issue 
? Understand the relevance of stock exchange as a medium 
through which funds can be raised 
? Understand the role of SEBI 
? Explain the concept of angel investors 
? Explain the concept of venture capital 
? Explain the role played by IDBI, SIDBI, IFCI, NABARD, IIBI, SFC, TFCI, SIDC 
Case Study-I 
Twitter Tweets 
Twitter – named after the sound of chirping birds in 2006, has today 
established itself as a cultural touchstone, growing from a few thousand 
geeky users to more than 200 million today. 
Most of Twitter's revenue comes from advertising. Research firm eMarketer 
estimates that Twitter will generate $ 582.8 million in worldwide ad 
revenue for 2013, up from $ 288.3 million in 2012. 
Twitter's money making potential has minted the company with an estimated market value of $ 10 
billion, based on the appraisals of venture capitalists and other early investors who have been helping to 
fund the business so far. 
Aiming for a sustainable future, Twitter, as has been long expected, tweets "IT WILL GO PUBLIC". 
The law that allowed Twitter to file its initial IPO documents confidentially is called the Jumpstart Our 
Business Startups Act or JOBS; President Barack Obama signed the law in 2012. It is designed to make 
it easier for small businesses and startups to grow and create jobs. Do you understand the significance of 
all this......??? 
GOING PUBLIC COULD GIVE TWITTER THE MUSCLE TO BECOME THE NEXT FACEBOOK 
OR APPLE – says one analyst.  
The capital gains from going public will likely allow the company to make solid investments across the 
board in hiring, operations and acquisitions — THAT'S THE POWER OF FINANCE. 
Content 
? Angel Investor 
? Venture Capital 
Funds 
? Stock market- 
raising funds 
? Specialized financial 
institutions 
 210 
 
Business is full of surprises. As an entrepreneur one may face situations that can catch them off 
guard. Any situation has the potential to become, either a 'disaster' or an 'opportunity'. 
Whether running a home-based business or a mid-sized venture, the first thing required is 
money. One cannot imagine a world without money – every day's life and every activity of 
human being is dependent upon money.  
Even, in a bid to minimize losses, it is essential to prepare for the "unexpected" by arranging 
and protecting the resources. Thus, 'Finance' refers to funds or monetary resources needed by 
individuals, business houses and the government. The significance of finance in enterprise is 
elucidated like a lubricant to the process of production. It's one of the most important pre-
requisite to start an enterprise. Finance is the elixir that assists in the formation of new 
businesses, and allows businesses to take advantage of opportunities to grow and expand. Right 
from the very beginning i.e. conceiving an idea; finance is required to: 
a) Promote or establish the business 
b) Acquire fixed assets 
c) Make market investigations 
d) Develop product 
e) Keep men and machines at work 
f) Encourage management to make progress and create value. 
g) Expand, diversify, improve and grow. 
h) Be enough to meet unexpected/unplanned business expenses. 
 'Production', 'Marketing', and Financing', deemed as the most important factors for any 
business survival, rates "Financing" as the first because nothing can be done without money. 
Thus, the most critical element for success in business is 'Finance'. Before doing anything, an 
entrepreneur should clearly answer the following three questions: 
1) How much money is required? 
2) Where will money come from? 
3) When does the money need to be available? 
As regards, the money needed, it can be estimated by developing a statement of various assets 
required by the enterprise. Integral to total amount needed is to decide about its arrangement or 
sources. 
Case Study-II 
Source of finance 
MONEY IS ALWAYS A PROBLEM 
"Air India has defaulted on working capital loan interest payment of ` 200 crores due to the financial 
crisis that the airlines is facing", confirms Air India sources on 21
st
 May 2011. Air India has high-cost 
loans worth about ` 40,000 crores. 
 211 
Air India is facing a tight financial situation and is in talks with lenders to restructure its debt of  
` 40,000 crore. The lenders have agreed to reduce interest rates on part of the debt that is linked to 
overseas borrowings. The future of the remaining debt is still uncertain, especially because lenders are 
seeking a conversion of their debt into equity or equity like instruments. This is perhaps the first time 
that the national carrier has defaulted on its payments to banks. Sources said the airline had approached 
banks for more loans but they have declined to help because of the airline's poor financial health. 
And they say "Finance is difficult for new entrepreneurs ..........". Its always a major concern. 
 
We have already made mentioned about the various sources from which an in grade XI about 
the various sources from which an enterprise can raise the required funds. We know by now 
thoroughly that these sources could broadly be classified into 2 major categories. 
1) Internal sources 
2) External sources 
We are even aware that not all of them are equally appropriate to all enterprises at all times as 
these different sources carry very different: 
? Obligations 
? Responsibilities  
? Opportunities  
Internal sources referred to as owner's own money is also known as 'equity'. Particularly in the 
case of small entrepreneurs the owner's money is very small. Therefore, an overwhelming 
portion of money is arranged from the external sources. Optimal financing of profitable new 
investment opportunities is key issue for all entrepreneurs today. The more successful 
entrepreneur is: the more money is required to remain further competitive and visible — NOT 
TO FORGET TWITTER'S IPO LAUNCH. Additional funds are "All time requirement". 
Nowadays a common growing practice is where the entrepreneur gives up part of his/her 
ownership in the enterprise and in return receive money to develop business. 
Case Study-III 
Financial gaming 
Google purchased Motorola Mobility for 9,800,000,000 (in USD), Microsoft Corporation purchased 
Skype for 8,500,000,000 (in USD) and Nokia Handset and Service Business for 7,200,000,000 (in 
USD) as notable Merges and Amalgamations of 2011 because latters were in financial crisis and 
formers were financial strong looking for expansion strategies. 
 
Thus, here we discuss some mushrooming sources available to an entrepreneur to raise finance: 
a) Capital markets 
b) Angel investors 
c) Venture capital 
d) Specialized financial institutions 
Page 4


 209 
UNIT –6: RESOURCE MOBILIZATION 
 
"Education is the manifestation of the perfection already in man." 
– Swami Vivekanand 
Learning objectives: 
The learner would be able to:  
? Understand the various sources of funds required for a firm 
? Raising funds through financial markets 
? Understand the method of floatation for new issue 
? Understand the relevance of stock exchange as a medium 
through which funds can be raised 
? Understand the role of SEBI 
? Explain the concept of angel investors 
? Explain the concept of venture capital 
? Explain the role played by IDBI, SIDBI, IFCI, NABARD, IIBI, SFC, TFCI, SIDC 
Case Study-I 
Twitter Tweets 
Twitter – named after the sound of chirping birds in 2006, has today 
established itself as a cultural touchstone, growing from a few thousand 
geeky users to more than 200 million today. 
Most of Twitter's revenue comes from advertising. Research firm eMarketer 
estimates that Twitter will generate $ 582.8 million in worldwide ad 
revenue for 2013, up from $ 288.3 million in 2012. 
Twitter's money making potential has minted the company with an estimated market value of $ 10 
billion, based on the appraisals of venture capitalists and other early investors who have been helping to 
fund the business so far. 
Aiming for a sustainable future, Twitter, as has been long expected, tweets "IT WILL GO PUBLIC". 
The law that allowed Twitter to file its initial IPO documents confidentially is called the Jumpstart Our 
Business Startups Act or JOBS; President Barack Obama signed the law in 2012. It is designed to make 
it easier for small businesses and startups to grow and create jobs. Do you understand the significance of 
all this......??? 
GOING PUBLIC COULD GIVE TWITTER THE MUSCLE TO BECOME THE NEXT FACEBOOK 
OR APPLE – says one analyst.  
The capital gains from going public will likely allow the company to make solid investments across the 
board in hiring, operations and acquisitions — THAT'S THE POWER OF FINANCE. 
Content 
? Angel Investor 
? Venture Capital 
Funds 
? Stock market- 
raising funds 
? Specialized financial 
institutions 
 210 
 
Business is full of surprises. As an entrepreneur one may face situations that can catch them off 
guard. Any situation has the potential to become, either a 'disaster' or an 'opportunity'. 
Whether running a home-based business or a mid-sized venture, the first thing required is 
money. One cannot imagine a world without money – every day's life and every activity of 
human being is dependent upon money.  
Even, in a bid to minimize losses, it is essential to prepare for the "unexpected" by arranging 
and protecting the resources. Thus, 'Finance' refers to funds or monetary resources needed by 
individuals, business houses and the government. The significance of finance in enterprise is 
elucidated like a lubricant to the process of production. It's one of the most important pre-
requisite to start an enterprise. Finance is the elixir that assists in the formation of new 
businesses, and allows businesses to take advantage of opportunities to grow and expand. Right 
from the very beginning i.e. conceiving an idea; finance is required to: 
a) Promote or establish the business 
b) Acquire fixed assets 
c) Make market investigations 
d) Develop product 
e) Keep men and machines at work 
f) Encourage management to make progress and create value. 
g) Expand, diversify, improve and grow. 
h) Be enough to meet unexpected/unplanned business expenses. 
 'Production', 'Marketing', and Financing', deemed as the most important factors for any 
business survival, rates "Financing" as the first because nothing can be done without money. 
Thus, the most critical element for success in business is 'Finance'. Before doing anything, an 
entrepreneur should clearly answer the following three questions: 
1) How much money is required? 
2) Where will money come from? 
3) When does the money need to be available? 
As regards, the money needed, it can be estimated by developing a statement of various assets 
required by the enterprise. Integral to total amount needed is to decide about its arrangement or 
sources. 
Case Study-II 
Source of finance 
MONEY IS ALWAYS A PROBLEM 
"Air India has defaulted on working capital loan interest payment of ` 200 crores due to the financial 
crisis that the airlines is facing", confirms Air India sources on 21
st
 May 2011. Air India has high-cost 
loans worth about ` 40,000 crores. 
 211 
Air India is facing a tight financial situation and is in talks with lenders to restructure its debt of  
` 40,000 crore. The lenders have agreed to reduce interest rates on part of the debt that is linked to 
overseas borrowings. The future of the remaining debt is still uncertain, especially because lenders are 
seeking a conversion of their debt into equity or equity like instruments. This is perhaps the first time 
that the national carrier has defaulted on its payments to banks. Sources said the airline had approached 
banks for more loans but they have declined to help because of the airline's poor financial health. 
And they say "Finance is difficult for new entrepreneurs ..........". Its always a major concern. 
 
We have already made mentioned about the various sources from which an in grade XI about 
the various sources from which an enterprise can raise the required funds. We know by now 
thoroughly that these sources could broadly be classified into 2 major categories. 
1) Internal sources 
2) External sources 
We are even aware that not all of them are equally appropriate to all enterprises at all times as 
these different sources carry very different: 
? Obligations 
? Responsibilities  
? Opportunities  
Internal sources referred to as owner's own money is also known as 'equity'. Particularly in the 
case of small entrepreneurs the owner's money is very small. Therefore, an overwhelming 
portion of money is arranged from the external sources. Optimal financing of profitable new 
investment opportunities is key issue for all entrepreneurs today. The more successful 
entrepreneur is: the more money is required to remain further competitive and visible — NOT 
TO FORGET TWITTER'S IPO LAUNCH. Additional funds are "All time requirement". 
Nowadays a common growing practice is where the entrepreneur gives up part of his/her 
ownership in the enterprise and in return receive money to develop business. 
Case Study-III 
Financial gaming 
Google purchased Motorola Mobility for 9,800,000,000 (in USD), Microsoft Corporation purchased 
Skype for 8,500,000,000 (in USD) and Nokia Handset and Service Business for 7,200,000,000 (in 
USD) as notable Merges and Amalgamations of 2011 because latters were in financial crisis and 
formers were financial strong looking for expansion strategies. 
 
Thus, here we discuss some mushrooming sources available to an entrepreneur to raise finance: 
a) Capital markets 
b) Angel investors 
c) Venture capital 
d) Specialized financial institutions 
 212 
I.  Capital markets 
At times, we have people that have money that they don't want to spend rather save for future 
use. On the other hand, there are people who want to spend money to undertake some 
economic activities but don't have the required amount of finance.  
The role of transferring financial resources from the surplus units to the deficit units is what is 
referred to as "Financial Intermediation". Capital Markets play a very vital role of a financial 
intermediatary. 
 
A capital market may be defined as an organized mechanism meant for effective and smooth 
transfer of money capital or financial resources from the investors to the entrepreneurs. Here, 
productive capital is raised and made available for industrial purposes. 
Capital markets are the most important source of raising finance for the entrepreneurs as this 
market can: 
a) Mobilize the financial resources on a nation-wide scale. 
b) Secure the required foreign capital and know-how to promote economic growth at a faster 
rate. 
c) Ensure the most effective allocation of the mobilized financial resources by directing the 
same either to such projects which are capable of the highest yield or to the 
underdeveloped priority areas where there is an urgent need to promote balanced and 
diversified industrialization. 
The needs of entrepreneurs who actually use the savings for productive purposes are varied. 
The capital market satisfies the tastes of savers and the needs of investors through its various 
financial instruments and institutions. As per entrepreneurs requirement they enter either of the 
following markets available under capital market:  
i) Primary market (new issues market) 
Primary market is basically to facilitate transfer of resources from the savers to the 
entrepreneurs seeking funds for: 
a) Setting new enterprises 
b) Expanding 
Page 5


 209 
UNIT –6: RESOURCE MOBILIZATION 
 
"Education is the manifestation of the perfection already in man." 
– Swami Vivekanand 
Learning objectives: 
The learner would be able to:  
? Understand the various sources of funds required for a firm 
? Raising funds through financial markets 
? Understand the method of floatation for new issue 
? Understand the relevance of stock exchange as a medium 
through which funds can be raised 
? Understand the role of SEBI 
? Explain the concept of angel investors 
? Explain the concept of venture capital 
? Explain the role played by IDBI, SIDBI, IFCI, NABARD, IIBI, SFC, TFCI, SIDC 
Case Study-I 
Twitter Tweets 
Twitter – named after the sound of chirping birds in 2006, has today 
established itself as a cultural touchstone, growing from a few thousand 
geeky users to more than 200 million today. 
Most of Twitter's revenue comes from advertising. Research firm eMarketer 
estimates that Twitter will generate $ 582.8 million in worldwide ad 
revenue for 2013, up from $ 288.3 million in 2012. 
Twitter's money making potential has minted the company with an estimated market value of $ 10 
billion, based on the appraisals of venture capitalists and other early investors who have been helping to 
fund the business so far. 
Aiming for a sustainable future, Twitter, as has been long expected, tweets "IT WILL GO PUBLIC". 
The law that allowed Twitter to file its initial IPO documents confidentially is called the Jumpstart Our 
Business Startups Act or JOBS; President Barack Obama signed the law in 2012. It is designed to make 
it easier for small businesses and startups to grow and create jobs. Do you understand the significance of 
all this......??? 
GOING PUBLIC COULD GIVE TWITTER THE MUSCLE TO BECOME THE NEXT FACEBOOK 
OR APPLE – says one analyst.  
The capital gains from going public will likely allow the company to make solid investments across the 
board in hiring, operations and acquisitions — THAT'S THE POWER OF FINANCE. 
Content 
? Angel Investor 
? Venture Capital 
Funds 
? Stock market- 
raising funds 
? Specialized financial 
institutions 
 210 
 
Business is full of surprises. As an entrepreneur one may face situations that can catch them off 
guard. Any situation has the potential to become, either a 'disaster' or an 'opportunity'. 
Whether running a home-based business or a mid-sized venture, the first thing required is 
money. One cannot imagine a world without money – every day's life and every activity of 
human being is dependent upon money.  
Even, in a bid to minimize losses, it is essential to prepare for the "unexpected" by arranging 
and protecting the resources. Thus, 'Finance' refers to funds or monetary resources needed by 
individuals, business houses and the government. The significance of finance in enterprise is 
elucidated like a lubricant to the process of production. It's one of the most important pre-
requisite to start an enterprise. Finance is the elixir that assists in the formation of new 
businesses, and allows businesses to take advantage of opportunities to grow and expand. Right 
from the very beginning i.e. conceiving an idea; finance is required to: 
a) Promote or establish the business 
b) Acquire fixed assets 
c) Make market investigations 
d) Develop product 
e) Keep men and machines at work 
f) Encourage management to make progress and create value. 
g) Expand, diversify, improve and grow. 
h) Be enough to meet unexpected/unplanned business expenses. 
 'Production', 'Marketing', and Financing', deemed as the most important factors for any 
business survival, rates "Financing" as the first because nothing can be done without money. 
Thus, the most critical element for success in business is 'Finance'. Before doing anything, an 
entrepreneur should clearly answer the following three questions: 
1) How much money is required? 
2) Where will money come from? 
3) When does the money need to be available? 
As regards, the money needed, it can be estimated by developing a statement of various assets 
required by the enterprise. Integral to total amount needed is to decide about its arrangement or 
sources. 
Case Study-II 
Source of finance 
MONEY IS ALWAYS A PROBLEM 
"Air India has defaulted on working capital loan interest payment of ` 200 crores due to the financial 
crisis that the airlines is facing", confirms Air India sources on 21
st
 May 2011. Air India has high-cost 
loans worth about ` 40,000 crores. 
 211 
Air India is facing a tight financial situation and is in talks with lenders to restructure its debt of  
` 40,000 crore. The lenders have agreed to reduce interest rates on part of the debt that is linked to 
overseas borrowings. The future of the remaining debt is still uncertain, especially because lenders are 
seeking a conversion of their debt into equity or equity like instruments. This is perhaps the first time 
that the national carrier has defaulted on its payments to banks. Sources said the airline had approached 
banks for more loans but they have declined to help because of the airline's poor financial health. 
And they say "Finance is difficult for new entrepreneurs ..........". Its always a major concern. 
 
We have already made mentioned about the various sources from which an in grade XI about 
the various sources from which an enterprise can raise the required funds. We know by now 
thoroughly that these sources could broadly be classified into 2 major categories. 
1) Internal sources 
2) External sources 
We are even aware that not all of them are equally appropriate to all enterprises at all times as 
these different sources carry very different: 
? Obligations 
? Responsibilities  
? Opportunities  
Internal sources referred to as owner's own money is also known as 'equity'. Particularly in the 
case of small entrepreneurs the owner's money is very small. Therefore, an overwhelming 
portion of money is arranged from the external sources. Optimal financing of profitable new 
investment opportunities is key issue for all entrepreneurs today. The more successful 
entrepreneur is: the more money is required to remain further competitive and visible — NOT 
TO FORGET TWITTER'S IPO LAUNCH. Additional funds are "All time requirement". 
Nowadays a common growing practice is where the entrepreneur gives up part of his/her 
ownership in the enterprise and in return receive money to develop business. 
Case Study-III 
Financial gaming 
Google purchased Motorola Mobility for 9,800,000,000 (in USD), Microsoft Corporation purchased 
Skype for 8,500,000,000 (in USD) and Nokia Handset and Service Business for 7,200,000,000 (in 
USD) as notable Merges and Amalgamations of 2011 because latters were in financial crisis and 
formers were financial strong looking for expansion strategies. 
 
Thus, here we discuss some mushrooming sources available to an entrepreneur to raise finance: 
a) Capital markets 
b) Angel investors 
c) Venture capital 
d) Specialized financial institutions 
 212 
I.  Capital markets 
At times, we have people that have money that they don't want to spend rather save for future 
use. On the other hand, there are people who want to spend money to undertake some 
economic activities but don't have the required amount of finance.  
The role of transferring financial resources from the surplus units to the deficit units is what is 
referred to as "Financial Intermediation". Capital Markets play a very vital role of a financial 
intermediatary. 
 
A capital market may be defined as an organized mechanism meant for effective and smooth 
transfer of money capital or financial resources from the investors to the entrepreneurs. Here, 
productive capital is raised and made available for industrial purposes. 
Capital markets are the most important source of raising finance for the entrepreneurs as this 
market can: 
a) Mobilize the financial resources on a nation-wide scale. 
b) Secure the required foreign capital and know-how to promote economic growth at a faster 
rate. 
c) Ensure the most effective allocation of the mobilized financial resources by directing the 
same either to such projects which are capable of the highest yield or to the 
underdeveloped priority areas where there is an urgent need to promote balanced and 
diversified industrialization. 
The needs of entrepreneurs who actually use the savings for productive purposes are varied. 
The capital market satisfies the tastes of savers and the needs of investors through its various 
financial instruments and institutions. As per entrepreneurs requirement they enter either of the 
following markets available under capital market:  
i) Primary market (new issues market) 
Primary market is basically to facilitate transfer of resources from the savers to the 
entrepreneurs seeking funds for: 
a) Setting new enterprises 
b) Expanding 
 213 
c) Diversifying 
The 'new issues' may be issued by: 
1) New companies – also called initial issues. 
2) Old companies – also called further issues. 
Initial issues 
The entrepreneurs highly bank on this type of "issue" to generate funds. When for the first time, 
entrepreneur for the purpose of obtaining capital funds decides to issue securities to the public 
— its first sale is in the primary market. Such ?issues of securities" are even referred as "new 
money issues". 
Methods of flotation of new issues 
An entrepreneur can raise the required capital in the primary market by the following methods: 
1. Public issue 
2. Rights issue 
3. Private placement 
4. Offer to the employees 
1. Public issue / going public 
 Public issue is the most popular method of raising capital these days by the entrepreneurs. 
This involves raising of funds directly from the public through the issue of prospectus. An 
enterprise organizing itself as a public limited company can raise the required funds 
commonly by preparing a prospectus.  
 When an entrepreneur a offers shares to the public for subscription he/she is required to 
comply with all the restrictions and formalities pertaining to the initial issues, prospectus 
drafting and launch. 
One of the most difficult problems in the new venture creation process is obtaining 
finance. When an entrepreneur decides to go public and become a public company, 
he/she tends to be in advantageous positions because of reaping the following benefits: 
1) Access to capital 
 The primary advantage an entrepreneur stands to gain by going public is access to capital. 
In addition, the capital does not have to be repaid and does not involve an interest charge. 
The only reward the IPO investors seek is an appreciation of their investment and possibly 
dividends.  
Entrepreneur can use the capital raised for a variety of purposes including: 
(1) growth and expansion, 
(2) retiring existing debt, 
(3) corporate marketing and development