VENTURE CAPITAL FUND- FAQS AND PROCEDURE

In continuation to our previous blog, we have tried to reply to some of the questions related to venture capital and procedure that how an Indian startup business can apply for venture capital funding in this blog.

Venture capital is a type of financing that is provided to minor, early-stage, developing businesses that are estimated to have high growth prospective, or which have demonstrated high growth.

As our previous blog explains about the venture capital. Link of previous blog is mentioned here: 

https://www.neusourcestartup.com/blog/venture-capital-fund

List of questions which are commonly asked

What are the advantages and disadvantages of venture capital?

There are some brief advantages and disadvantages of venture capital fund.

Advantages

• Venture capital bring wealth and expertise to the startup business
• Small start-up receive the large sum of equity finance
• The business doesn’t have any requirement to recompense the fund
• Investor delivers the valuable information, practical support to create a business fruitful along with the capital

Disadvantages

• Investors become owners by taking shares and control of the founder is vanished
• Process of venture capital fund is very extended and composite
• Startup owners realise the benefit from such financing in the long run only

What are the factors to be considered by the investor to invest in start-ups?

There are several factors to be considered by the venture capitalist. Different investor uses different criteria to judge an investment and the same will vary on the stage of investment in which the start-up is indulged and so on.

• Project analysis of the start-up.
• Sales forecast, targeted audience are the other factors.
• Management and its team in the affairs of the start-ups.

What are the investor’s income sources from investing in start-ups?

Payments is been made to the venture capital fund manager in the form of management fees and interest. There is an agreement wherein the profit sharing clause has been defined with the percentage of profit sharing ratio between the start-up and the investing partners.

What is the position of the venture capitalist?

After making investment in the new emerging business, the venture capitalist will be considered as a partner. The venture capitalist contributes to the management decision and takes part in the team of board of directors.

What is a venture in business?

The business venture is a new business that is formed with a plan and strategy with the expectation that financial gain will shadow. After determination of plan, small business founder develop the new skills to market the new product or service in which he deal so that his business venture can start successfully.

Procedure to apply for venture capital funding

New start up can approach a venture capital firm for funding.

There are four phases in which the procedure is summarise and have to follow any start-up who wants to take venture capital funding.

Step 1: Idea generation and proposal of the business project

The initial step towards approaching for venture capital is to submit a business plan. The plan should comprise the points like,

There should be an executive summary of the business proposal

Description of the business opportunity with the market potential and size

Review on the existing and expected scenario

Thorough monetary estimates

Particulars of the company management

Before deciding whether to fund the project or not, detailed analysis is required on submitted plan

Step 2: Introductory meeting

Once the primary study is done with the venture capitalist. If they find the project as per their preferences, further discussion would be possible in detail. After the meeting the Venture Capital finally decides whether or not to move forward to the due diligence stage of the process.

Step 3: Thoroughly investigation 

Thoroughly investigation leads towards the due diligence. This due diligence fluctuates from business to business and depends upon the nature of the business application. This process involves solving of queries related to customer references, management interviews, evaluations of product and business strategy.

Step 4: Funding with term sheets

The Venture Capital offers a term sheet with a non-obligatory certificate explaining the simple terms and circumstances of the legal funding contract when the due diligence segment are acceptable by investors. This certificate must approved by both the parties and also negotiable, after which on completion of legal documents and legal due diligence, funds are made available to the applicant.

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Heena Aggarwal

Ideas are easy but implementation is hard thus not to concern about failure, you only have to be right once. Here Neusource supports your idea enthusiastically to validate into fruitful startup