VENTURE CAPITAL (also known as VC or Venture) is a type of private equity capital typically provided to immature, growth company in the interest of generating a return. Venture capital investment are generally made as cash in exchange for shares in the invested company. The first VC firm was American Research and Development Corporation in 1946.
ARDC was founded by Georges Doriot, the “Father of venture capitalism.
VENTURE CAPITAL can be defined as funds that are generally invested in the form of equity. Investments may take the form of simple shareholder’s equity (common or preferred shares), as well as convertible debentures and other vehicles. The structure of the investment generally depends on the company’s needs and its stage of development, taking into account the objectives of both entrepreneur and the investor.
Venture capital helps in creating environment particularly suitable for knowledge and technology based enterprises due to the blend of risk financing and hand holding of entrepreneurs.
Venture capitalists provide networking, management and marketing support.
Venture capitalists finance innovation and ideas which have potential for high growth.
Global venture capital industry, investors and investee firms work together closely in an enabling environment.
It helps entrepreneurs to focus on value creating ideas and allows venture capitalists to drive the industry through ownership.
The investment is in the form of capital, the company's financial structure and financial ratios are improved accordingly, giving the entrepreneur the necessary flexibility and financial capacity to achieve his objectives;
Little or nothing to repay in the short term, so that the capital invested and funds generated internally can be used exclusively to accelerate the company's growth;
The venture capitalist is not there to man stimulate its growth through active strategic support and constructive involvement, by giving the entrepreneur the benefit of his own experience as well as that of his business network.
They all strive to invest their money in companies that offer strong growth potential and a promising strategic position on their respective markets.
They endeavour to increase the value of their investments by providing the entrepreneur with capital, of course, but also with the expertise, the network and the experience necessary to accelerate the company's growth .
They invest for the medium and long term, in order to develop the company's potential to the fullest and thus maximize the return for all shareholders.
A detailed business plan is received from the company.
Representatives of the investor determine that whether they should do investment in an company or not.
If the plan looks promising, the investor works with the management.
Generally , this stage requires 6-14 weeks of intense work.
The fundamental investment criteria of venture capitalists boil down to these three points :
The Management Team
The Product or Service
Where are VC’s Investing In India?
• IT services • Software Products (Mainly Enterprise-
Venture Capital is most attractive for new companies with limited operating history that are too small to raise the capital in public markets and are too immature to secure a bank loan. In exchange for the high risk that venture capitalists assume by investing in smaller and less mature companies.