Venture Capital
   • Entrepreneurs need funds to realize their endeavour
   • Venture capital financing is funding provided to companies and entrepreneurs
   • Venture capital is an important source of financing small scale enterprise and high 
     technology and risky ventures. 
   • It is often thought of as the early stage financing of new and young enterprises 
     seeking to grow rapidly. 
   • In this mode there is involvement of venture capitalist in the management of 
     entrepreneurs unit. 
   • Traditional finances generally provide financial support to the established and 
     proved technology areas only whereas venture capitalist provides financial 
     support to high and new technology based units.
   • In broad terms, Venture capital is the investment of long term equity finance 
     where the venture capitalist receives his return generally in the form of capital 
     gains. 
     –Under this mode, venture capital financer and entrepreneur work together as partners for 
      the benefit of enterprise. 
     –The venture capitalist focuses on growth and wants to see small businesses grow in to 
      larger ones.
                             Venture Capital
     • Venture capital is a form of private equity and a type of financing 
        that   investors   provide    to start-up companies      and  small 
        businesses that are believed to have long-term growth potential.
     • Venture  capital  funds are  investment funds that  manage  the 
        money of investors who seek private equity stakes in start-up 
        and small & medium enterprises with strong growth potential. 
       – These investments  generally  involve  characterized  as  high-risk/high-
          return opportunities
     • Venture  Capitalist  in  India  are  an  essential  part  of  start-up 
        ecosystem. 
       – Once a start-up  has  reached  it’s  growth  stage,  it’s  most  important 
          requirement is undoubtedly the backing by reliable investors and an 
          ample amount of funding to scale up.
     Characteristics of venture financing
   • Equity participation
    –It is actual or potential equity participation through direct 
     purchase of shares, options or convertible securities with 
     objectives of making capital gains by selling off the investment 
     when the unit becomes profitable.
   • Long term investment
    –Time period of investment varies from 5 to 10 years.
   • Managerial participation
    –There is active involvement of venture capitalist in the enterprise. 
    –By providing necessary management skills viz., planning, 
     organizing, controlling, leading and functions like finance, 
     marketing etc.
      Stages in Venture Capital Financing
  There are five stages in venture capital financing:
  1. Seed Stage
  • At the seed stage, the company is only an idea for a 
   product or service, and the entrepreneur must 
   convince the venture capitalist that their idea is a 
   viable investment opportunity.
    –  If the business shows potential for growth, the investor 
     will provide funding to finance early product or service 
     development, market research, business plan 
     development, and setting up a management team. Seed-
     stage venture capitalists participate in other investment 
     rounds alongside other investors.
      Stages in Venture Capital Financing
  2. Start-up Stage
   • The start-up stage requires a significant cash infusion to help 
    in advertising and marketing of new products or services to 
    new customers. At this stage, the company has completed 
    market  research,  has  a  business  plan  in  place,  and  a 
    prototype of their products to show investors. The company 
    brings in other investors at this stage to provide additional 
    financing.
  3. First Stage
   • The company is now ready to go into actual manufacturing 
    and sales, and this requires a higher amount of capital than 
    the previous stages. Most first-stage businesses are generally 
    young and have a commercially viable product or service.