Introduction to Venture Capital.
Venture capital is money provided by professionals who investalongside management in young, rapidly growing companies that havethe potential to develop into significant economic contributors. Venturecapital is an important source of equity for start-up companies.Professionally managed venture capital firms generally are privatepartnerships or closely held corporations funded by private and publicpension funds, endowment funds, foundations, corporations, wealthyindividuals, foreign investors, and the venture capitalists themselves.In India where the industry is still nascent, the Securities andexchange board of India has laid down those activities that wouldconstitute eligible business activities qualifying for the concessionavailable to a recognized venture capital fund. Initially, SEBI definedventure capital as an equity supported for the project launched by 1
generation entrepreneurs using commercially untested butsophisticated technologies. However, this definition has beensubsequently relaxed and the restrictive feature concerning “technology financing “ were dispensed with. Venture capital is nowseen as encompassing all kinds of funding of a high technologyintensive undertaking at any stage of its life.It would appear from the foregoing that venture capital investmentwould have one or more of its follow characteristics.1.Equity or equity featured instrument of investment.2.Young companies that do have access to public sources of equityor other forms of capital.3.Industry, products or services that hold potential of better thannormal or average revenue growth rates.4.Companies with better than normal or average profitability.5.Product / Services in the early stages of there life cycle.