VENTURE CAPITAL

What is CAPITAL ?
Fund employed in any business activity.
Most important factor for production.
No economic entity can function without capital.

Venture Capital
Venture capital is significant innovation of 20th century. It

is generally consider as synonym of risky capital.

Venture capital is a new financial service, the emergence
of which wants towards developing strategies to help a
new class of new entrepreneurs to translate their
business ideas into realities.

What is 'VENTURE CAPITAL ?

 Start up companies with a potential to grow need a certain

amount of investment. Wealthy investors like to invest

their capital in such businesses with a long-term growth
perspective. This capital is known as venture capital and
the investors are called venture capitalists.

Definition
The SEBI defined Venture Capital fund in its regulation

1996 as a fund established in the form of a company or

trust which raises money through loans, donations, issue
of securities or units as the case may be & makes or
proposes to make investments in accordance with the
regulations.

Stages in venture capital

1. Seed Money: Low level financing needed to prove a new
2.
3.
4.

5.
6.

idea.
Start-up: Early stage firms that need funding for expenses
associated with marketing and product development.
First-Round: Early sales and manufacturing funds.
Second-Round: Working capital for early stage
companies that are selling product, but not yet turning a
profit.
Third-Round: Also called Mezzanine financing, this is
expansion money for a newly profitable company
Fourth-Round: Also called bridge financing, it is intended
to finance the "going public process

FEATURES OF VENTURE CAPITAL

The main features of venture capital are:
Long-time horizon: In general, venture capital undertakings take a longer time
say, 5-10 years at a minimum to come out commercially successful; one should,
thus, be able to wait patiently for the outcome of the venture.
Lack of liquidity: Since the project is expected to run at start-up stage for several
years, liquidity may be a greater problem.
High risk: The risk of the project is associated with management, product and
operations.
High-tech: However, a venture capitalist looks not only for high-technology but
the innovativeness through which the project can succeed.
Equity participation and capital gains: A venture capitalist invests his money in
terms of equity. He does not look for any dividend or other benefits, but when the
project commercially succeeds, then he can enjoy the capital gain which is his
main benefit.
Participation in management: Unlike the traditional financier or banker, the
venture capitalist can provide managerial expertise to entrepreneurs besides
money.

ADVANTAGES OF VENTURE CAPITAL

Economy Oriented Helps in industrialization of the country

Helps in the technological development of the country
Generates employment
Investor oriented Benefit to the investor is that they are invited to invest only
after company starts earning profit, so the risk is less and
healthy growth of capital market is entrusted.
Profit to venture capital companies.
Helps them to employ their idle funds into productive
avenues.

Entrepreneur oriented Finance - The venture capitalist injects long-term equity

finance, which provides a solid capital base for future
growth.
Business Partner - The venture capitalist is a business
partner, sharing the risks and rewards.
Mentoring Alliances - The venture capitalist also has a network of
contacts in many areas that can add value to the
company

DISADVANTAGES OF VENTURE CAPITAL

Lengthy and complex process (needs detailed business

plan, financial projections and etc.)

In the deal negotiation stage, you will have to pay for legal
and accounting fees.
Investors become part owners of your business - founder
loss of autonomy or control.

Problems facing by Venture Capital

Requirement of an experienced management team.
Requirement of an above average rate of return on

investment.
Longer payback period.
Uncertainty regarding the success of the product in the
market.
Questions regarding the infrastructure details of
production.
Skills and Training required.
Time Period.
Interference in Business:

Top cities attracting Venture Capital investments:

VC industry wise segmentation

Venture Capital funding in India

VCFs in India can be categorized into following five groups:

1. Those promoted by the Central Government controlled

development finance institutions. For example:
- ICICI Venture Funds Ltd.
- IFCI Venture Capital Funds Ltd (IVCF)
- SIDBI Venture Capital Ltd (SVCL)
2. Those promoted by State Government controlled
development finance institutions. :-For example:
- Punjab Infotech Venture Fund
- Gujarat Venture Finance Ltd (GVFL)
- Kerala Venture Capital Fund Pvt. Ltd.

3) Those promoted by public banks. :- For example:

- Canbank Venture Capital Fund
- SBI Capital Market Ltd
4)Those promoted by private sector companies. :-For example:
- IL&FS Trust Company Ltd
- Infinity Venture India Fund
5)Those established as an overseas venture capital fund. :For example:
-Walden International Investment Group
- HSBC Private Equity
- Mauritius Management Ltd