About Venture Capital (VC) |
Starting and growing a business always require capital. There are a number of alternative methods to fund growth. These include the owner or proprietor’s own capital, arranging debt finance, or seeking an equity partner, as is the case with private equity and venture capital.
Private equity is a broad term that refers to any type of non-public ownership equity securities that are not listed on a public exchange. Private equity encompasses both early stage (venture capital) and later stage (buy-out, expansion) investing. In the broadest sense, it can also include mezzanine, fund of funds and secondary investing.
Venture capital is a means of equity ...view middle of the document...
When venture capitalists invest in a business they typically require a seat on the company's board of directors. They tend to take a minority share in the company and usually do not take day-to-day control. Rather, professional venture capitalists act as mentors and aim to provide support and advice on a range of management, sales and technical issues to assist the company to develop its full potential. |
Venture capital has a number of advantages over other forms of finance, such as: |
* It injects long term equity finance which provides a solid capital base for future growth. * The venture capitalist is a business partner, sharing both the risks and rewards. Venture capitalists are rewarded by business success and the capital gain. * The venture capitalist is able to provide practical advice and assistance to the company based on past experience with other companies which were in similar situations. * The venture capitalist also has a network of contacts in many areas that can add value to the company, such as in recruiting key personnel, providing contacts in international markets, introductions to strategic partners, and if needed co-investments with other venture capital firms when additional rounds of financing are required. * The venture capitalist may be capable of providing additional rounds of funding should it be required to finance growth. |
How does the VC industry work |
Venture capital firms typically source the majority of their funding from large investment institutions such as fund of funds, financial institutions, endowments, pension funds and banks. These institutions typically invest in a venture capital fund for a period of up to ten years.
To compensate for the long term commitment and lack of both security and liquidity, investment institutions expect to receive very high returns on their investment. Therefore venture capitalists invest in either companies with high growth potential where they are able to exit through either an IPO or a merger/acquisition. Although the venture capitalist may receive some return through dividends, their primary return on investment comes from capital gains when they eventually sell their shares in the company, typically between three to five years after the investment.
Venture capitalists are therefore in the business of promoting growth in the companies they invest in and managing the associated risk to protect and enhance their investors' capital. Selecting the VC investors |
The members of the Indian Private Equity and Venture Capital Association comprise a number of venture capital firms in India. The IVCA Directory of Members provides basic information about each member's investment preferences and is available from the Association.
Prior to selecting a venture capitalist, the entrepreneur should study the particular investment preferences set down by the venture capital firm. Often venture capitalists have preferences for particular...