2. Venture Capital – a significant financial innovation in the 20th Century “ HIGH RISK CAPITAL”
3. What is VC? William Davis defines VC as “ finance for young developing firm in areas of high technology. The basic is simple: find a promising small firm, provide financial backing and share in its success”
4. International Finance Corporation defines VC as ” an equity or equity-featured capital seeking investment in new companies, new products, new processes or new service, that offer the potential of high return on investment” They resemble Christopher Columbus who risked his life in discovering new countries, but aimed at getting enormous treasure…
5. Features: Form of Investment: equity shares in VC unit. convertible bonds, debentures, loans. 2) New companies: focus on new companies. 3)Turnaround companies: loss making cos may turn out to be highly profitable. 4) High Risk Return Profile: VC dare to invest in highly risky projects.
6. 5) Long term association: Investment horizon is 5-7 yrs. 6) Exit schedule: VC do not stay invested in a single co forever. 7) Participation in Mgt: not only a fund provider but also a first class entrepreneur. Hands on mgt approach –to protect and enhance his investment. 8)Performance Benchmark: VC establish benchmark.
7. 9) Taking control: Mgt Buy In and Mgt Buy Out. 10)Dealing with Technocrats: dealing with Technocrats whose pockets are empty but have innovative qualities.
8. Factors leading to VC financing: 1) Grant of licences 2) Well developed capital mkts 3) New project availability 4) Wide tax base 5) Vast technical pool 6) Enterprising culture
