VENTURE CAPITAL FUND

MEANING : Venture capital represents financial investment in a highly risky project with objective of earning a high rate of return . Venture capital companies provide the necessary risk capital to the entrepreneurs so as to meet the promoters contribution as required by the financial institutions . DEFINIATION : Venture capital is defined as an quity / quity related investment in a growth oriented small medium business to enable investees to accomplish corporate objectives , in return for monitoring share holding in the business or the irrevocable right to acquire it . Venture Capital is a way in which investor support entrepreneurial talent with fianc and business skill to exploit market opportunities and thus , to obtain long term capital gains . It is the provision of risk bearing capital , usually in the form of participation in equity to companies with high growth potential .

DEFENIATION OF VENTURE CAPITAL COMPANIES

A Financing institution which joins an entrepreneur as a co-promoter in project and shares risk and rewards .

FEATURES OF VENTURE CAPITAL

1. Venture Capital is basically equity finance in relatively new companies when it is two early to go to the capital market to raise fund . However such investment is not equity investment . It can also be mack in the form of finance / convertible debt to ensure a running yield on the portfolio of venture capital list . 2. It is a long term investment in grouth oriented small / medium firms .The acquisition from outstanding shares from other share holder cannot be considered venture capital investment . It is a new long term capital that is injected to enable the business to grow rapidly .

3. There is a substantial degree of active involvement of the venture capital institutions with the promoters of the venture capital under takings . It means such finance also provides business skills to the investee firm which is terned as hand on approach / management . However Venture Capitalist do not seek / acquire a majority interest in the investees , through under special , circumstances and for a limited period they might have a controlling interest . But the objective is to provide business skills only and not interface in management . 4. Venture capital financing involves high risk return spectrum . Some of the ventures yield very high return to more than compensate for heavy losses on others which also may have potential of profitable returns . 5. Venture Capital is not technology finance through technology finance may form a sub set of venture capital financing .

STAGE OF VENTURE CAPITAL FUND

The venture capital financing can be broadly divided into two : 1) Early Stage venture capital 2) Later Stage venture capital

EARLY STAGE FINANCING

Early stage financing covers the seed , start-up and second round stage . Seed Capital Stage This stage is a pre-start up stage needing funds for testing the prototype and giving it a commercial shape .This is the primary stage associated with research and development . Briefly , the following situations are typical of the prestarting stage : 1)Research and Development prior to commercial application . 2)Intial period of technology transfer, licensing stage for technology transfer .

3)Testing of prototype prior to commercial lisation . 4)Generating commercial awareness of the invention prior to marketing . 5)Industrial joint venture . 6)Establishment or research institution linked Science parks . Start-up Stage An entrepreneur may feel the need for finance when the business activity is just starting . The start- up stage involves the launching of a new business start up of a new business activity may have the following features : a) New business activity could be based an the experiences of the industry expert ,spin offs from R&D institutions R&D of big corporation , transfer of technology from overseas based business , or a joint venture between an entrepreneurs and a technology expert etc. b) New product / service from the above activity yet to be tired . c) Enterpreneures locks financial resources required from the enterprise . d) Indication of potential but untried market for the product or services . e) The enterprise which has a formal organizationl structure as a limited company , is no longer as individual owner managed set up but needs the support of expert . Although , the start up stage is exposed to high risk , more and more venture capitalists , hoping for capital gains through equity appreciation , are eager to finance such project . Second Round Fiance The circumstances under which second round fianc is needed by an negative or positive : The negative reasons are : 1) Overruns in the project before completion necessitating a second round of equity funding to avoid liqudation . 2) A period of loss after start up , necessitating equity type funding for maintaining acceptable debt equity rate .

3) Inability to get further equity finance from other sources , necessitating backing by venture capitalists who have earlier provide funding. On positive note , if a start up is successful and the business is growing apace , additional funding is required for expansion . LATER STAGE FIANCING The refers to post early stage financing when a project has established itself and business is spreading its wings and is looking for higher growth . later stage funding is also known as meggamine financing . Venture Capitalists around the would , particularly in the UK and USA prefer investing in later stage projects in order to reap capital gains , ensure immediate income on investment through dividends and encash the investment for capital gains at a later , more appropriate , time with an eye on tax relief or other incentives available . The various sub-divisons of later stage financing are : 1)Expansion Finance Expansion of an under taking or enterprise may be through an organic growth or by way of acquisition or takeover .The growth and expansion of an enterprise , unemply large worker / factories / warehouse , new product , new market both domestic and overseas . This may be accomplished with the help of venture capitalists who provide farmer finance for enlarging the workshop / factory area , processing system / strong space for products . 3) Replacement Finance Replacement Finance aims at enhancing the equity base in an enterprise , resulting in a change of owners / ownership pattern of the enterprise .Venture capitalists make finance available by purchasing existing shares from entrepreneurs or their association to reduce their holdings in the unlisted company . 4) Turnaround

Turnaround implies the recovery of an enterprise .A turnaround deal resembles early stage financing where the business is not yet profitable .The company may face mounting debts burden and slowing down of cash inflows and need more funds from sources viz . bankers ,financial institutions and exiting investors including venture capitalists plays an providing more equity investments and deplaying managerial expects . 5) Buyouts US banks had first launched the concept of buyout in the UK during the recessionary trend noticed in late 1960s and 1970s . Buyout are a recent development in service areas of recent development of merchant bankers and savings institutions , a new form of investment in venture capital .

rong