m Venture Capital is investing in companies that have undeveloped or evolving

products or revenue. It lays particular stress on entrepreneurial attempts and

less mature businesses.
m Venture Capitalists are those who are desirous to accept high risk in order to
attain a much more higher rate of return. A Venture Capital fund invests for
a very long term, has a relatively small number of ´stocks,µ and seeks very
high returns.
m The Venture Capitalists invests in companies, because they are looking for
opportunities of gaining considerably higher returns than in stock market
returns.
m — Seed stage: Financing provided to research, assess and develop an initial concept
before a business has reached the start-up phase.
m — Start-up stage: Financing for product development and initial marketing.
Companies may be in the process of being set up or may have been in business for a
short time, but have not sold their products commercially and will not yet be
generating a profit.
m — Expansion stage: Financing for growth and expansion of a company which is
breaking even or trading profitably. Capital may be used to finance increased
production capacity, market or product development, and/or to provide additional
working capital. This stage includes bridge financing and rescue or turnaround
investments.
m — Replacement Capital: Purchase of shares from another investor or to reduce
gearing via the refinancing of debt.
m — Equity: because if and when the business achieves
considerable success, that equity stake will be worth the
invested capital.

m — Control: because VCs want to reduce the risk that the

entrepreneur will run a promising idea into the ground.
m °.Nature: Venture Capital is a long term investment. Since the project is risky, it may
take time to earn profits. Therefore, it takes time to get the refund of capital as well
as return on it. The investors can exist on success of the project by off-loading their
investment. But it takes long time to get the success.
m 2.Form: Venture Capital is mainly in the form of equity capital. Investors can
subscribe the equity capital and provide the necessary funds to complete the project.
The amount of equity invested by the venture capitalist is normally up to 49%of the
total equity capital required for the project.
m 3.Borrowers: The borrowers are the new entrepreneurs who raise venture capital
because they cannot get such an amount from the general investors.
m 4.Type of project: Venture Capital projects are high risk, high technology and long
term projects.
m 5.Managenment: Venture Capital projects are managed jointly by the entrepreneurs
and venture capitalists. However, venture capitalist should not interfere in day to day
activities of the management. The venture capitalist can take active part in the
management and decision-making.
m 6.New venture: Venture capital investment is generally made in new enterprises that
use new technology to produce new products, in expectations of high gains or
sometimes, spectacular returns.
— Business Consultations - Many venture capital firms have consultants on
their staffs that are well versed in specific markets. This can help a start up
firm avoid many of the pitfalls that are often associated with start-up business
ventures.
m Management Consultations - Unfortunately, not all entrepreneurs are good
business managers. Since venture capital firms almost always require a
percentage of equity in the start-up firm, they likely will have a say in how the
firm is managed. For the non-management expert, this can be a significant
benefit.
m Human Resources - In terms of finding the best talent for start up firms,
venture capital firms often provide consultants who are specialists in hiring.
This can help a start up firm avoid the pitfalls of hiring the wrong people for
their company.
m Additional Resources - Starting a new business is fraught with concerns
about legal matters, payroll matters, and tax issues. It is not unusual for a
venture capital firm to take an interest in providing these resources since
they have a vested interest in the success of the company.
Pricing - Venture capitalists are typically more sophisticated and may drive
harder bargain.
Intrusion - Venture capitalists are more likely to want to influence the
strategic direction of the company.
Control - Venture capitalists are more likely to be interested in taking
control of the company if the management is unable to drive the business.