INTRODUCTION CAPITAL Fund employed in any business activity. Most important factor for production. No economic entity can function without capital. Venture capitalVenture 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 Capiatl?Venture Capital is “equity support to fund a new concepts that involve a higher risk and at the same time, have a high growth and profit.”“Venture Capital is broadly implies an investment of long term, equity finance in high risk projects with high rewards possibilities.”
Stages in venture capital 1. Seed Money: Low level financing needed to prove a new idea. 2. Start-up: Early stage firms that need funding for expenses associated with marketing and productdevelopment. 3. First-Round: Early sales and manufacturing funds. 4. Second-Round: Working capital for early stage companies that are selling product, but not yet turning a profit. 5. Third-Round: Also called Mezzanine financing, this is expansion money for a newly profitable company 6. Fourth-Round: Also called bridge financing, it is intended to finance the "going public process”
ROLES WITHIN A VENTURE CAPITAL FIRM 1. Venture capital general partners: Also known in this case as "venture capitalists" or "VCs" are the executives in the firm. 2. Limited partners: Investors in venture capital funds are known as limited partners. 3. Venture partners: Venture partners "bring in deals" and receive income only on deals they work on. 4. Entrepreneur in residence: EIRs are experts in a particular domain and perform due diligence on potential deals. EIRs are engaged by VC firms Some EIRs move on to roles such as Chief Technology Officer (CTO) at a portfolio company
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 Investor Entrepreneur Oriented oriented
ADVANTAGES OF VENTURE CAPITALEconomy Oriented- Helps in industrialization of the country Helps in the technological development of the country Generates employment Helps in developing entrepreneurial skillsInvestor 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 companyFacilitation of Exit - The venture capitalist is experienced in the process of preparing a company foran initial public offering (IPO) and facilitating in trade sales.
Methods of venture capital equity Conditional loan Income note Other financing method
Process of venture capital • Deal origination1 • Screening • evaluation(due diligence)2 • Deal structuring • Post investment activity3 • Exist plan