VENTURE CAPITAL by R.Gopalakrishnan, CPSU Officer (Retd.)
Venture Capital is the fund or Initial capital provided to businesses typically at a start-up stage and many times for new and untested ideas. Typically Venture Capital funds have a higher-risk and higher-return profile as compared to normal equity funds. Venture Capital is an important and ideal source of finance for those small and medium –sized firms, which have very few avenues for raising funds. Venture capital funds are mutual funds that manage venture capital money. i.e. these funds aggregate money from several investors who want to provide capital and deploy this money in venture capital opportunities.
Venture capitalists comprise of professionals of various fields. They provide funds after carefully scrutinizing the projects. They take active participation in the management of the company as well as provide expertise and qualities of a good banker, technologist, planner and manager. Thus, the venture capitalist and the entrepreneur literally act as partners.
The venture capital activity is a sequential process involving the following six steps:-
1. Deal Organisation
3. Due Diligence Evaluation
4. Deal structuring
5. Post-investment activity
Venture capital is typically available in three forms in India.
- Equity -not exceeding 49 %
- Conditional Loan- it is repayable in the form of Royalty after the venture is able to generate sales.
- Income Note-It is a hybrid security which combines the features of both conventional and conditional loan. The entrepreneur has to pay both interest and royalty on sales, but at substantially low rates.