Venture Capital Fund - Funding Source For Indian Startup Business

Venture capitalists are the investors that assist in providing the capital just to initiate the business idea to the small business. The start-ups are generally established on an advanced technology and business ideal. Venture capital firms advance in very early-stage of company in interchange for equity and a possession stake. Venture capitalists proceeds on the possibility of supporting risky start-ups in the optimisms that some of the firms they care will become fruitful. Venture capital also known as seed funding for the start-ups.The purpose of providing the capital assistance is to help the small companies in setting up the projects through financial participation.

Venture capital ( Investment amount )

Venture capital is a form of private equity and a type of funding that financiers provide to new companies and minor industries that have the potential of improvement. Venture capital usually arises from rich depositors, investment banks and any other monetary organisations.

Why small start up looking to private equity investor (venture capitalists)

An investment from a venture capitalist is a form of equity financing. The investor deliveries money in company in exchange for taking equity position. Equity financing is normally used by less established businesses or can say small start-up that are unable to secure business loans from financial institutions because of insufficient cash flow, lack of security, or a very extraordinary outline.

Who controls the risky start-ups

Mostly firms acquire mainstream voting rights by having the maximum shares with extraordinary polling rights in exchange of providing funding. The venture capitalist is usually in the form of partnership wherein the partners take the mutual decision in making investment decisions. Once the company has been targeted for making the investments, they pool their funds in the exchange of the sizeable equity stake.  This venture capitalist will buy the stake in these firms, nurture the firm growth and earn good return once successful.

Process of the venture capital

Any business seeking for venture capital is to submit a business plan to a venture capital firm. If interested in the proposal then the venture capitalist firm must perform due diligence, which includes a thorough investigation of the company's business model, products, and management. It is necessary to research the background as they investor invest in very large amount. After completion of due diligence, the financier will initiate an investment of wealth in exchange for equity in the company. The investor participates the active role in the funded company and to advice and monitoring its progress before discharging further funds.

Essentials of venture capital

The venture capital financing is different from traditional financing. In traditional, financiers invest in proven technologies and low risk ventures, whereas venture capitalists invest in new technologies and high risk ventures. Nearly the key distinctive types of venture capital may be concise as follows:

(1) High Risk: Investor delivers investment to high risk high reward ventures. Risk such as market risk, liquidity risk or technology updating risk or any other type of risk.

(2) Longstanding Investment: Venture funding is a continuing investment of funds. Funds are provided for 5 to 10 years. Venture capital is not repayable on demand. The investor has to wait for a long time to earn profit.

(3) Management Participation: Venture capitalists participate in the management affairs and give advice from time to time along with the investment in the equity shareholding of the entrepreneurs company.

(4) Professional Entrepreneurs: Usually, the venture capital is provided to those entrepreneurs who are technically qualified but don’t have adequate funds to start a new venture.

(5) Latest Technology: Entrepreneur who attempts innovative technology which may produce uncertain results is the main seekers of venture capitalists.

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