Venture Capital

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EXECUTIVE SUMMARY.

Venture capital is the capital invested in a business where the chances of success are uncertain. It is the term to describe the financing of startup and early stage businesses as well as businesses in ‘’turn around’’ situations. Venture capital investments generally investments generally are higher risk investments but offer the potential for above-average returns. A venture capitalist (VC) is a person who makes such investments. The initial, start-up money is referred to as ‘’seed money’’ and entails the greatest risk. If the project gets off the ground it may require additional financing at additional ‘’rounds’’ or the ‘’mezzanine level’’ before the company is finally brought to the market and the venture capitalist can enjoy handsome rewards. Venture capital is subject to more than a normal degree of risk and thus called as Risk Capital. It is usually associated with a new business or venture. Though not as a rule but usually it is in relation to new business or venture. Though not as a rule but usually it is in relation to new technology projects.

A venture capital funding arrangement typically entails diluting ownership and control of the business. Offsetting the high risk the investors take is the potential of high return on the investment.

CHAPTER 1:INTRODUCTION TO VENTURE CAPITAL.

CONTENTS:

➢ DEFINITIONS.

➢ FEATURES OF VENTURE CAPITAL.

➢ STAGES AND SCOPE OF VENTURE CAPITAL FINANCING.

DEFINITIONS:

1. Venture Capital:

Venture Capital is capital provided by outside investors for financing of startup ventures, growth ventures or struggling (to be turned around from losses) businesses. Venture Capital investments generally are higher risk investments. At the same time offer the possibility of extraordinary high returns.

2. Venture Capitalist (VC):

Venture capitalist is a person who makes such investments.

3. Venture Capital fund:

Venture capital fund is a partnership or a trust or a company that primarily invests the financial capital of promoters and other investors in enterprises that are too risky for the standard capital market or bank loans.

FEATURES OF VENTURE CAPITAL.

Some of the features of venture capital are as follows;

1 .Venture capital is usually in the form of equity or a mix of equity and debt. The some rare cases it could be just long term loan or convertible loan.

2. Commercial success of funded venture is not tested and hence VC is a risk venture.

3. If successful, VC can get extraordinary returns.

4. Venture capitalist is not just a fund provider but also is involved in managing the envisaged growth of the firm.

5. Investment is usually in tiny, small or non-existent ventures. Big established ventures are not funded by VCs.

6. Venture capitalist are interested in capital gains and cash gains.

7. VCs generally exit business after achieving desired growth and thereby booking capital appreciation.

STAGES AND SCOPE OF VENTURE CAPITAL.

|STAGE |CAPITAL CONCEPT |PURPOSE | |Concept and idea development stage |Seed Capital |For product development and pilot plant. | | | |Commercial possibilities are tested at this | | | |stage. | |Implementation |Start-up finance...
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