- Venture capital is a type of private equity a form of financing that is provided by firms or funds to small, early-stage, emerging firms that are deemed to have high growth potential, or which have demonstrated high growth (in terms of number of employees, annual revenue, or both). Venture capital firms or funds invest in these early-stage companies in exchange for equity–an ownership stake–in the companies they invest in. Venture capitalists take on the risk of financing risky start-ups in the hopes that some of the firms they support will become successful. The start-ups are usually based on an innovative technology or business model and they are usually from the high technology industries, such as information technology (IT), social media or biotechnology.
- Features of venture capital:
- It is a high risk venture
- It finances high tech projects
- The gestation period is long. The benefit from the venture capital will start accruing only after an average period of 4-5 years
- The venture capitalist also makes available to the assisted unit managerial and marketing assistance.
- When the assisted company reaches a certain stage of profitability the venture sells his share of stocks at a hefty premium in the market.
- It is an active form of investment with higher degree of involvement in the management of a venture.
FUNCTIONS OF VENTURE CAPITALIST
- ¨Venture capital provides finance as well as skills to new enterprises and new ventures of existing ones based on high technology innovations.
- ¨The venture capitalist fills the gap in the owners funds in relation to the quantum of equity required to support the successful launching of a new business or the optimum scale of operations of an existing business.
- ¨The venture capitalists role extends even as far to see that the firm has proper and adequate commercial banking and receivable financing
- ¨The venture capitalist assists the entrepreneurs in locating , interviewing, and employing corporate achievers to professionalize the firm.