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CAPITAL
INTRODUCTION
VENTURE CAPITAL (also known as VC or
Venture) is a type of private equity capital
typically provided to immature, growth
company in the interest of generating a
return. Venture capital investment are
generally made as cash in exchange for
shares in the invested company. The first
VC firm was American Research and
Development Corporation in 1946.
DEFINITION
VENTURE CAPITAL can be defined as funds
Ø
Ø Venture capitalists provide networking,
management and marketing support.
CONTD..
ØGlobal venture capital industry,
investors and investee firms work
together closely in an enabling
environment.
1.
ØIt helps entrepreneurs to focus on
value creating ideas and allows
venture capitalists to drive the
industry through ownership.
Features
Equity participation: Venture capital is actual or
potential equity participation through direct purchase of
shares, the objective is to make capital gain by selling-off
investment becomes profitable.
Long term investment: Venture financing is a
long-term illiquid investment; it is not payable on demand.
It requires long term investment attitude that necessitates
the venture capital firms(VCFs) to wait for a long period.
Participation in management: Venture
financing ensures continuing participation of the venture
capitalist in the Mgt. of the entrepreneur’s business,. More
than finance, venture capitalist gives his marketing,
technology planning and management skill of the new firm.
ADVANTAGES
ØThe investment is in the form of capital, the
company's financial structure and financial
ratios are improved accordingly, giving the
entrepreneur the necessary flexibility and
financial capacity to achieve his objectives;
It
may be difficult to offload equity
stake.
The agency cost is generally high to
prevent the misuse of asset.
Depreciation tax shield will be
transferred to the lessor
Stages of financing