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Venture capital (also known as VC or Venture) is a type of private equity capital typically provided to early-stage, high-potential, growth companies in the interest of generating a return through an eventual realization event such as an IPO or trade sale of the company. Venture capital investments are generally made as cash in exchange for shares in the invested company. It is typical for venture capital investors to identify and back companies in high technology industries such as biotechnology Venture capital firms typically comprise small teams with technology backgrounds (scientists, researchers) or those with business training or deep industry experience. VC has a reputation of being a particularly impenetrable career path, employing only those who bring expert value. A venture capitalist (also known as a VC) is a person or investment firm that makes venture investments, and these venture capitalists are expected to bring managerial and technical expertise as well as capital to their investments Venture capital is most attractive for new companies with limited operating history that are too small to raise capital in the public markets and are too immature to secure a bank loan or complete a debt offering. In exchange for the high risk that venture capitalists assume by investing in smaller and less mature companies, venture capitalists usually get significant control over company decisions, in addition to a significant portion of the company's ownership (and consequently value). Young companies wishing to raise venture capital require a combination of extremely rare yet sought after qualities, such as innovative technology, potential for rapid growth, well thought through business model and impressive management team. VCs typically reject 98% of opportunities presented to them, reflecting the rarity of this combination. The venture capital activity is a sequential process involving the following seven steps. 1. Seed financing 2. Startup financing 3. First Stage Financing 4. Second Stage Financing 5. Third Stage 6. Mezzanine or Bridge Financing 7. Initial Public Offering (IPO) Seed financing This is the first stage in venture capital and begins when idea is still being formed and is not fully developed or live. The creator is given a small amount of money to come up with the first design or beta version. This money is usually from the creators pockets but also can come from family, friends, or "fools" and sometimes angel investors. Startup financing The project is starting to come together, there is at least one full time principal and the product is expand and getting ready for the first official launch. The most likely place that this funding will come from are angel investors but there are also some early stage venture capitalists. First Stage Financing The start up has launched and it is starting to see results, increases in sales and a team of employees is in place. First stage financing helps the firm reach its breakeven point and increase productivity while cutting unit costs and also building corporate infrastructure. This is usually in the 2nd or 3rd year of the company. This is where true venture capitalists start to get involved. It's important to notice that true venture capitalists don't like to get involved until the project is really showing promise. Second Stage Financing The company is really moving now, sales are growing and there is lots of inventory on hand. This stage involves rapid expansion including marketing expenses and entering new markets. This is mostly powered by venture capital firms. Third Stage The company is clearly going to succeed, everything is going well with the company and expansion is rapid. This is more funding to keep the expansion going. Mezzanine or Bridge Financing The company is a proven success and it plans on going public very soon. Bridge funding is short term financing before the company goes public. Clearing out old debt, buying out early investors, and paying for other costs before going public are all in this stage. The company is about to hit the big time. There are venture capitalist firms and bridge financing specialists that can assists with this stage. They are usually paid back after the company goes public. Initial Public Offering (IPO) The company finally has reached liquidity and it's stock can be bought, sold, and traded in public. Founders often leave the project at this point and try to start from square one again. Most startups never reach the IPO or Bridge stages but in the end it's the ultimate goal of any company with high aspirations. Other companies can also have some variations of these phases with more funding at a certain step. TDICI was incorporated in January 1988 with the support of the ICICI and the UTI. The country's first venture fund managed by the TDICI called VECAUS ( Venture Capital Units Scheme) was started with an initial corpus of Rs.20 crore and was completely committed to 37 small and medium enterprises. The first project of the TDICI was loan and equity to a computer software company called Kale Consultants. It primarily assist small and medium scale projects conceived by technocrats entrepreneurs by providing project finance in the from of equity or conditional loans apart from offering technology information services. The primary advantage of venture capital is that they allow entrepreneurs to build their company with OPM (other people's money). If you need financing to build your technology or product and don't have the money to do it yourself, the idea is that the ventue capitalists provides the capital to allow you to build. In exchange, the venture capitalist takes some ownership in your company. The venture capitalist then hopes that your company increases in value and ultimately has a liquidity event (e.g. IPO or sells to another company) so that they can get a return on their invested capital. In addition to capital, venture capitalist can be an invaluable source of information, resources and contacts to help you be successful. More times than not, venture capitalists have experience building companies themselves so they can really help you think strategically about how to grow and be successful. Long and complex process To chart out the whole business plan to pay legal or accounting fees whether or not VC is successful.
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