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Venture Capital

VENTURE CAPITAL-INTRODUCTION




Capital is one of the most important factors of production


From the functional point of view, capital to a company is like
blood to the human body.


However entrepreneurs come across great difficulty to procure
capital for the newly floated enterprises as at the initial stage of
business, risk is very high and returns quite uncertain.


Common investors hesitate to invest their savings in such
companies because the rate of returns normally remains
matchless.
Venture Capital-Origin and Growth




The concept of Venture Capital originated in USA in the 19th
and 20th centuries.



Venture Capital took place in 1958 when Business
Administration Act was passed by US Congress.




In UK the concept became popular in the late 60's.



Venture Capital started serious operations in Europe in the 80s
and UK, France, West Germany and Netherlands are the major
constituents of European Venture Capital industry.
Concept of VC


The term Venture Capital comprises of two words viz `Venture'
and `Capital'.
The dictionary meaning of Venture' is a course of proceeding. The
outcome of which is uncertain, but which is attended by the risk
of danger of loss and the term Capital' means resources to start
the enterprise.
In a narrow sense, Venture Capital is understood as capital, which
available for financing new business venture.
This definition incorporates the three main features that
distinguish venture capital investment from other forms of capital
investment. They are:
Supporting entrepreneurial talent.
Providing business management skill.
A return in the form of long term capital gain.
Characteristics - Vc


1. Investments are generally equity investment.
2. The return of the investment is taxed as capital gain rather than ordinary
income.
3. Investment is made in new enterprise, using new and improved
technology in expectation if higher gain and speculative return.
4. Venture capital investor does not interfere in the management
5. Along with equity finance, additional assistance in the form of quasi
equity, conditional loan.
6. Normal security backed loans may also be considered but not isolation. 7.
Investment is made only in high risk but high growth potential projects.
8. Finance is extended only when risk factors are offset by even higher
probability of success.
9. Investment is usually in small and medium scale enterprise, preferably
start ups.
Forms of Venture Capital Assistance





Venture capital usually is available in the
following forms:
- Equity
- Conditional Loans
- Normal Loans
- Participating debenture.
Steps to obtain Venture Capital Finance

The following are the steps to obtain venture capital finance.
1. Prepare comprehensive project report and with information
on market technology, promoters and finance along with the
business plan.
2. If accepted, detailed discussion on the project with the
venture capital company, submission of comprehensive project
report and structuring of the financial package.
3. Agreements, sanctions and disbursement.
4.Appointment of nominee directors.
5. Periodical monitoring reports on performance.
Importance of Venture Capital Venture Capital helps the
entrepreneurs
Importance of Venture Capital


Venture Capital helps the entrepreneurs having good project idea
but no previous track record to launch their project successfully.
The rapid technological development world over has led to the
growth of technological in India but indigenous technology has
been slack due to unwillingness of the people to take
entrepreneurial risk. In this situation venture capital assumed
significance, as it provides strong impetus for entrepreneurs to
develop the product with new technology and commercialize
them.
Venture Capital has gained its importance as it solves the pattern
of sickness of company.
Venture Capitalists are also of help to a large number of smaller
units under which they are able to upgrade their technology.
Venture Capital in India





Venture Capital division of IDBI
Risk Capital and Technology Finance Corporation
Limited.
CanBank Venture Capital Fund
CitiBank Venture Capital Fund
SBI Capital Market.
Grindlays Venture Capital Fund
20th Century Venture Capital Corporation Limited.
Credit Capital Venture Fund (India) Limited.
Indus Venture Capital Fund