Venture Capital
let’s learn what is venture capital, its process, features and financial stages.
What is Venture Capital ● In simple words, Venture Capital refers to the private equity financing provided by venture capital firms to fund startups early-stage, small & mid-sized, and emerging companies with the potential to grow and provide a better return on investment. ● Venture Capital can also be defined as equity or related investment to young yet dynamic growth and innovative ideas that may achieve success in the future but are not capable of approaching capital markets for raising funds.
Venture Capital Process Who Is Eligible for Venture Capitals ● Startups that cannot access equity capitals or other related investors. ● Firms that are above average profit scale. ● Novel products that are in the early stage of production or life-cycle. ● Projects with above-average risk. ● Diversified business Ventures
Venture Capital Investment Process ● Initial Evaluation ● Due Diligence ● Deal formation negotiation and investment evaluation ● Document preparation ● Monitoring and value additional ● Release
Venture Capital Finance Stages ● Early Stage Financing ○ Seed Financing ○ Startup Financing ○ Second Stage Financing ● Expansion Financing ○ Bridge Financing ○ Acquisition Financing
Venture capital is a form of private equity capital that is typically offered in early-stage, high-potential, emerging companies to get a better return on investment through eventual realization functions like IPO trade or selling trade of the company. The SEBI has authorized Venture Capital in its regulation in 1996 as a capital that is established in the form of a firm or trust which simply collects funds through loans, donations and issues securities or units to make investments accordingly.’
Features of Venture Capital 1. High Risk As the definition suggests itself, Venture Capital Financing is associated with high risk and failure as it offers long-term startup capital to highly-risky ventures. Venture Capital majorly associates with four types of risks; ● Management Risk ● Market Risk ● Product Risk ● Operation Risk 2. Equity Participation & Capital Gains It takes place in the early stage because the dividends might be delayed and equity capitals imply that investors endure the risk of the idea and get returns equivalent to success in the name of capital gains.
Cont.…. 3. Management Participation Leveraging the experience of other companies, the Venture Capitalist would elaborate the promoters on project blueprints, monitoring, financial management along with working capital and public complications. While Capitalists cannot interfere with day-to-day operations they stay connected with promoters to safeguard their investment. 4. Duration of Investment The duration determines the return on investment and ventures talent, capitalists, and owners to get fruition. 5. Illiquid Investment Venture Capital investments or Corporate Venture Capital are illiquid and are not subject to on-demand repayment or following a schedule. Investors only get profit when the investment is sold in the marketplace. 6. High-tech Venture Capitalists prefer to invest in first-gen entrepreneurs with great interest in the latest technology and high-tech ideas that are completely unique.
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