VENTURE CAPITAL AN INNOVATIVE PRACTICE BY Dr. Neeta Shah Prof. Poonam Singh
INTRODUCTION Venture capital is also known as risk capital Most flexible form of financing technology based. Innovative business firms. More wide way of getting finances for investment in business enterprises which hold a bright future in terms of profit and growth. It is invested as equity shares and not as any type of a loan. It has now emerged as the best financing alternative in developing as well as developed countries
TRAITS REQUIRED FOR VENTURE CAPITAL INVESTMENT A business firm which has the potential to grow in near future The investment should be for a long time like from two to ten years. The business should have had invested in shares of established business enterprises which hold strong history of profits. The risk level should be high of the ongoing projects in the firm that also ensure high amount of pro fits. Once the funding is done, the investor must remain active. And profitability which is best for an investor.
CHARACTERISTICS OF THE VENTURE CAPITAL Long horizon time: Lack of liquidity: High risk: High returns: Equity participation Participation in management:
METHODS OF VENTURE CAPITAL Seed money financing Development financing: Later stage financing
THE VENTURE CAPITAL INSTITUTION WILLPROVIDE FINANCE AS FOLLOWS Messanine capital: Bridge capital Management buy-outs: Management buy-in: Turn around: Financial turn around Management turns around
MODES OF VENTURE FINANCING Venture capitalists carry out substantial financial support to provide enough flexibility to meet the requirements of the company. The venture capitalist typically makes an investment in........ Equity: Quasi-equity:
VENTURE CAPITAL INVESTMENT PROCESS Deal origination: Screening: Evaluation: Deal structuring: Post-investment activities and exit
FACTORS DETERMINING VENTURE CAPITAL INVESTMENTS Management and organization pattern: Production process: Marketing and sales: Profitability: Reference information: Legal matters: Professional reference:
ADVANTAGES It injects long term equity finance which provides a solid capital base for future growth. The venture capitalist is a business partner, sharing both the risks and rewards. Venture capitalists are rewarded by business success and the capital gain. The venture capitalist is able to provide practical advice and assistance to the company based on past experience with other companies which were in similar situations. The venture capitalist also has a network of contacts in many areas that can add value to the company. The venture capitalist may be capable of providing additional rounds of funding should it be required to finance growth. Venture capitalists are experienced in the process of preparing a company for an initial public offering (IPO) of its shares onto the stock exchanges or overseas stock exchange such as NASDAQ.
CONCLUSION The venture capital investment being risky and long term in nature needs to be introduced effectively to enhance its applicability to a larger extent. Effective measures of financing pattern of venture capital companies certainly give a boost to the efforts for setting up such technology based companies. Public financial institutions are making efforts in this direction. Government institutions need to be more open and flexible to work hand in hand with the other institutions for overall development of the country with strong financial support.