Report On Venture Capital

INTRODUCTION
Venture capital is financing that investors provide to startup companies and small businesses
that are believed to have long-term growth potential. Venture capital generally comes from
well-off investors, investment banks and any other financial institutions. However, it does not
always take just a monetary form; it can be provided in the form of technical or managerial
expertise.

FEATURES
1. It is basically financing of new companies which are finding it difficult to go to the
capital market at their early stage of existence.

2. This finance can also be loan-based or in-convertible debentures so that they carry a
fixed yield for the providers of venture capital.

3. Those who provide venture capital aim at capital gain due to the success achieved by
the concern that borrows.
4. It is a long-term investment and made in companies which have high growth potential.
The provision of venture capital will bring rapid growth for the business.
5. The venture capital provider will also take part in the business of borrowing
concern whereby, the venture capital financier not merely confines to finance, but also
provide managerial skill.
6. Not all the capitalists will experience high risk. But venture capital financing contains
risks. But the risk is compensated with a higher return.
7. Not much of technology is involved in venture capital, it involves financing mainly small
and medium size firms, which are in their early stages. With the assistance of venture
capital, these firms will stabilize and later can go in for traditional finance.

HOW VENTURE CAPITAL WORKS ?

A venture capital firm is a group of investors who gain income from wealthy people who
want to grow their wealth. They take this money and use it to invest in more risky businesses
than a traditional bank is willing to take on. Because the investments are risky, the venture
capital firm typically charges a higher interest rate to the businesses it is investing in than
other types of lenders would. The interest rate is worth it to the business, however, because
the business would otherwise not receive the financing needed. When individual investors
entrust their money to a venture capital firm, the firm puts the money in a fund. This fund is
then invested in several companies, with the expectation that the companies will be able to
repay the money in around three to seven years. This money is repaid either when the
company takes their business public and starts selling stocks and bonds, or when the
company is acquired by another company. The money is then paid back to the venture capital
firm, with interest. Sometimes, the money is repaid through shares of stock in the company.
Once all of the money in a particular fund is returned, the money, with the interest earned, is
then sent back to the investors. Of course, the firm takes a portion of the money as their fee.
PROCESS

 Deal Origination
 Screening
 Evaluation
 Deal Negotiation
 Post Investment Activity
 Exit Plan

ADVANTAGES & DISADVANTAGES

The advantages and disadvantages of venture capital financing are various. Some of the
advantages and disadvantages are given below.

 The autonomy and control of the founder is lost as the investor becomes a part
owner.
 The process is lengthy and complex as it involves a lot of risk
 The object and profit return capacity of the investment is uncertain
 The investments made based on long term goals thus the profits are returned late
 Although the investment is time taking and uncertain, the wealth and expertise it
brings to the investor is huge
 The sum of equity finance that can be provided is huge
 The entrepreneur is at a safer position as the business does not run on the
obligation to repay money as the investor is well aware of the uncertainty of the
project

WHY VENTURE CAPITAL IN INDIA?

Venture Capital in India is important and has seen rampant growth because of the following
reasons.It commercializes research and scientific knowledge in fastest mode.Provide risk
finance. It provides management expertise to first generation entrepreneurs. Helps in tapping
potential intellectual opportunities.Promotion of innovation &entrepreneurship. Quality of
IPO’s improved.