Venture Capital

 Venture Capital - Normally when you apply loan, then bank gives you money but they don’t give you advice. Venture capitalist provide money , advice , idea and rules and regulations . 

It is a form of private equity , because in exchange he will ask for a stake .

It is generally provided to start ups or at initial stage who has some potential in evolution then they help.

Definition - SEBI  has defined venture capital fund in its regulation 1996 as a fund established in the form of a company or trust which raises money through loans. donations , issue of securities or units as the case may be and makes or proposes to make investments in accordance with the regulations .

Meaning - Venture capital is a type of private equity capital typically provided by professional , outside investors to new , growth businesses.

In simple word , Venture capital is a type of funding provided by investors known as venture capitalist , funded provided to start ups , small business who has high growth potential , in exchange of potential higher returns that too in the form of stake . In addition to capital they offer expertise , guidance to help them in growth .

• Assist in development of new products and services.
• Adds value to the company through active participation 
• Purchase equity securities .
• Finance new and rapidly growing companies 

#Features of Venture Capital 

1. High risk - High chance of failure 

2. Management risk - Inability of management teams to work together.

3. Market risk - Product may fail in the market 

4. Product risk - Product may not be commercially viable 

5. Operating risk - Operations may not be cost effective resulting in increased cost decreased gross margins .

#Advantages 

• Banks usually prefer to finance a new business which has hard assets. In the current information based economy , new start ups hardly have any hard asset . 
• They can provide more insights to the market 
• Can help in strategy formulation 
• Can help in developing strategic networks. 

# Disadvantages 

• Complex process - In order to raise funds you need to approach VC by submitting a robust model .
• Share of profit of company - Equity division
• Loss of control - Need to consent or consult with the shareholders in the case of difference of opinions among the shareholders .

#Stages 

1. Pre sed stage capital - Is a capital provided to an entrepreneur to help them develop idea. Many entrepreneurs interested in raising VC Funding will enter business incubators , which provide various services and resources for entrepreneurs to connect them the VC and networks that will help them develop their business idea and product.

2. Seed stage - Develop idea into early stage product . Usually funds the R and D of new products and services and research into prospective markets .

3. Early stage capital - To set up initial operation . Sales , marketing , commercial manufacturing and Development .

4. Later - Stage capital - Provided after the business generates revenues but before an IPO.