VENTURE CAPITAL

What is venture capital?

Venture capital is risk financing available in the form of equity or quasi equity. A venture capitalist also provides management support and acts as a partner and advisor to the entrepreneur. Venture capital is defined as equity or equity related investment in a growth oriented small or medium business to enable investees to accomplish corporate objectives.

Objectives of venture capital

Provide foresight with free sense of direction Fuels ambitions and dreams Helps in building enterprise vision Smoothly glide over rough passage Partners enterprises on to script thrilling success Breathes life into promising business venture,etc.

Characteristics of venture capital

Equity finance to new companies Long term investment in growth oriented firms Involvement with promoters of venture capital undertakings and in management High risk return spectrum

Features of venture capital

Equity participation Long term investment Participation in Management METHODS OF VENTURE FINANCING: Equity Conditional loan Income notes

Stages of financing
Seed stage financing Startup financing First stage financing Second stage financing Third stage financing Bridge financing Initial public offering

Disinvestment mechanism
Buyback by promoters Initial public offerings Secondary stock market Management buyouts

Advantages of venture capital: It helps in industrialization of country It helps in technological development of country It generates employment It develops entrepreneurial skills DISADVANTAGES OF VENTURE CAPITAL: The lessee has lower debt capacity It may be difficult to offload equity stake The agency cost is generally high to prevent the misuse of assets Depreciation tax shield will be transferred to the lessor

 The Development of venture capital in india is about two decades old . But it is still not in developed stage and requires promotional efforts as well as policy initiatives for a fast growth. The important players are : Commercial banks Cooperative banks IDBI IFCI SFC`s SIDBI UTI NSIC ,etc .

Problems of venture capital financing

Requirement of an experienced management team Requirement of an above average rate of return Longer payback period The size of market Uncertainty Competitors and their market share Skills and training required and the cost of training