VENTURE CAPITAL
V C is a private equity investment in entrepreneurial companies, used to finance the working capital requirement and asset needs of high risk ventures.
PATTERN OF INVESTMENTS: 1) Finance, new growth oriented companies. 2) Invest in knowledge based companies. 3) Assist for the development of new products. 4) They take high risk in anticipation of high reward. 5) The investment will be on long term basis.
VENTURE CAPITAL IN INDIA: In the year 1972 a committee was constituted under Sri. R.S. Bhatt and it recommended the creation of venture capital fund. IFCI was the first institution to set up VC fund in 1975. IDBI launched VC in 1976. The other all India financial institutions also allocated funds for providing assistance.
2. Venture Capital
VENTURE CAPITAL AND OTHER FUNDS: V C and Development capital: VC is advanced for ventures using new technology and they take part in the management of the project also. But development capital will normally give loan only. (SIDBI). VENTURE CAPITAL AND RISK CAPITAL: Risk capital provide funds to professionals to promote projects. TYPES OF V C COMPANIES: 1) Limited Partnership firms. 2) Independent VC Co. 3) Subsidiaries of Financial Institutions. 4) Investment trust. FEATURES OF VENTURE CAPITAL: High tech ventures, Continuous support, Equity investment, Participation in the management, High risk – high return ventures, Social objectives, Ill- Liquid.
STAGES OF FINANCING
EARLY STAGE FINANCING: SEED CAPITAL: Small amounts required to turn an idea into business or for development of a product. START UPS: After R & D it is launch of a new business. The demand for finance will be more at this stage to set up a venture. SECOND ROUND FINANCING: After the commencement of production the requirement for funds will be more to meet the growing needs of the business. LATER STAGE FINANCING: Development capital: At this stage the company needs additional plant and machinery, expansion of its marketing facilities etc. Expansion finance: After the initial success it needs bigger factory, large warehouses, new products etc.. Buy outs: Funds are provided to acquire another business / product
Venture Capital..
Replacement capital: Some time funds are provided to purchase the shares from some of the other existing owners. Turnarounds: This involves buying of sick companies for revival. FACTORS AFFECTING INVESTMENT DECISION: Strength of the management team. Must be a viable idea. Proper planning. Cost of the project and returns on investment. Technology. Future growth prospects. Other considerations.
SELECTING A VENTURE CAPITAL
The management must be careful before they enter into an agreement with a VC company. The following points must be noted: Approach of the venture capital company. Flexibility of VC. Funds availability. Track record of V C. Exit policy of V C.
BENEFITS OF VENTURE CAPITAL: V C backed companies have shown better and fast growth. Better decisions are made. Assured fund availability. Participation of VC increase the image of the company.
VENTURE CAPITAL IN OTHER COUNTRIES
IN USA: V C financing originated in the USA after world war II. Few big investors came forward to form VC and invest funds in new ventures based on new technologies. The AMERICAN Research and Development Corporation was formed as the first V C company in 1946. Further more new companies entered in this field after 1960. V C financing was a runaway success in US. Invention of Xerox, Computers and setting up of Silicon Valley are the results of VC financing. IN EUROPE: V C became popular in countries like Sweden, France, UK, & Netherlands during 1980. The European Venture Capital Association was formed in 1983. This fund aimed at assisting the growth of the small and medium industries. IN ASIA: The industrial development that started taking place in Japan after world war II was due to the growth of V C. In Japan VC was set up by financial institutions to finance high technology industries. Other Asian countries like Singapore, South Korea, Hong Kong also followed the example of Japan and USA.