VENTURE CAPITAL

Athul Kudwa,
Executive Director
Omnesys Technologies Pvt Ltd
Entrepreneurship and economic development are intimately related.
Schumpeter opined that the entrepreneurial process is a major factor in
economic development and that the entrepreneur is the key to economic
growth. Whatever be the form of economic and political set-up of the
country, entrepreneurship is indispensable for economic development. In
developed countries, entrepreneurs are oft thought of as national assets
to be cultivated, motivated and remunerated to the greatest possible
extent. It is often said that entrepreneurs can change the way we live
and work. Successful entrepreneurs have, over the years, contributed to
an improvement in the standard of living and shaping of the economic
fortunes of nations and their populous. From Rockerfeller and Ford, to
Gates and Zuckerberg; the list of illustrious and influential entrepreneurs
is long. The common thread here has been that in addition to creating
wealth from their entrepreneurial ventures, these people have also
created jobs and the conditions for a prosperous society and the country
as a whole.
Another facet of entrepreneurship is its synonymy with risks. Walking
away from security of a stable job and career path to create something
new is something every new entrepreneur is confronted with. The peril of
taking oneself and his/her family into an unfamiliar storm of stress and
uncertainty is always lurking around the corner. So is the occupational
hazard of miscalculating an opportunity, or worse still, poor and illthought out execution.
It is in this backdrop that venture capitalists (VCs) play an important role,
helping entrepreneurs negotiate crucial challenges with the aim of
sharing the risks and rewards of the business growth.
Venture Capital :
VCs are investors or groups of investors that privately fund new
companies, and are prominent in technology, bio-tech and other sunrise
and high risk industries. In exchange for financial support (Venture
Capital), they exercise some control over company operations /
management. They contribute in the form of financial support, business

management experience, networking contacts etc., thereby adding value

to the companies they invest in.
Types of Venture Funds
Stage of the Typical
Venture
Period

Risk
Perception

Purpose

Seed Funding

3-7 years

Extreme

For supporting
a concept or
idea or R&D
for the product

Start up

5-9

V High

Initializing
operations

First Stage

3-7

High

Commercial
Production
Marketing

Second Stage

3-5

High

Expansion

Third Stage

1-3

Medium

Market
expansion for
already
profitable firms

Fourth Stage

1-3

Lower

Facilitating
Public issue

Benefits of VC funding:
Innovation: VCs foster innovation by providing the financial
muscle power for fruition of new ideas, often giving companies
flexibility to broaden their research and enhancing their chances to
succeed.
Value creation: They assist companies in identifying and
developing value drivers, - steering corporate growth, and helping
prioritize and allocate resources, based on what they believe will

add the most value to the company. Statistically, participation of a

VC in the operations of a business significantly increases the
probability of a product making it through the pipeline to the
market.
Strategic Plan: VCs usually have some sort of term in mind
limiting the duration of their involvement with a company. They
want a return on their investment within a period of time and will
plan an exit strategy based on the milestones set out in their
agreement with the company. The VC helps execute a strategic
plan for each step in the growth of the company using the
milestones as markers. The culmination of the same is usually a
major event such as an initial public offering (IPO) or acquisition,
within 5-7 years.
Professionalization: The VC helps to professionalize a company
by identifying and recruiting competent Board and management
members. Although the VC is involved in the overall corporate
plan, this ensures that the company is being managed on a day to
day basis by professionals with experience and business knowhow.
Networking: They help a company plan for its future by identifying
and establishing sources of later financing. VCs are business
professionals
who
should
be
fairly
well
connected
through networking with other potential investors and advisors.
They can use these connections to help establish their companies
in the marketplace by making introductions to technologycollaboration partners throughout their networks.
Benchmarking: VCs are experts in business investing and are
generally well versed in the development of other companies. They
have done their research before investing, therefore are aware of
the competition and what stage their product development / go to
market process may be at. A continued vigilance is important in the
rush to have IP established, launch new products, and make it to
the marketplace ahead of the competition.

Disadvantages:

 Equity is the most costly of the capitals and parting with this to the
VCs will mean dilution for the promoters.
VCs usually get a say in how the company is run, thus their role is
to cooperate with the company founders/ owners in determining
operational milestones. Goals set for the company must be
achievable and it is important that the promoters and the VCs see
eye-to-eye, agreeing on their defined objectives and priorities
without either feeling restricted or in disagreement with the other.
Without a strong relationship and effective communication, the
resulting friction can hurt the company.

Venture Capital Segmentation:

Conclusion:
So it is important that the entrepreneur choose the right Venture Capital
firm to partner with in their venture. While the VC firm brings lot of value
to the table it must possess the relevant expertise of the sector that the
entrepreneur wants to operate in. It is essential for an entrepreneur to
research before settling for the right VC. It could turn out to be a critical
decision having a very important bearing on the future of the start up.

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FROM DEANS DESK

VENTURE CAPITAL
Dear Patrons and Readers,
Our in house S & M Journal is going to keep its Fourth Step forward
through this issue. The feed back from our esteemed readers, patrons,
associates, professionals, staff and students are encouraging over our
earlier issues which resulted in this issue reaching in your esteemed
hands.
Our previous issue is on STARTUPs which is incomplete without the
VENTURE CAPITAL an inevitable essential factor without which the
unit will not be able to go into the higher dimensions in their seizes.
The current trend is, there is a rapid rise in Venture Capital Funds both
within the country and from abroad. Foreign Venture Capital firms are
lining-up to fund the new VENTURES/STARTUPs in India towards the
Mission of MAKE IN INDIA. In a Global context, the size and culture of
ventures look at higher quantum of finance on one hand and the Venture
Capital firms are taking high risk to fund the potential Ventures on the
other.
We profusely thank all our subscribers to this magazine by way of
forwarding the articles and advertisements, the organisers of this
magazine to make it presentable into your hands.

Regards
PROF. K. R. PRABHU
DEAN