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Venture Capital Essay

7046 words - 29 pages

Venture Financing in India
A. Sahay*

Abstract Innovation is stated to be the initiating force for a new venture but venture finance is the life blood for entrepreneurship. Innovation is the fuel for igniting the Entrepreneurial engine, Venture capital revs up the engine fast till it attains sustainable speed to change the gears from idea to entity, eventually reaching IPO stage. The paper starts with Research and Development Cess Act, 1986 and covers the development in the field till 2003 and presents an analysis of venture investments as well as future prospects . The history of Venture capital (VC), its advent in India, Characteristics of VC, Government guidelines on VC, Classification ...view middle of the document...

Entrepreneurship is the king pin for growth and prosperity for which we have to plant idea factory in every mind through education. Ideas, when pursued, will need innovation. If innovation is the fuel for igniting the Entrepreneurial engine, Venture capital revs up the engine fast till it attains sustainable speed to change the gears from idea to IPO stage. With the fuel alone, one can’t drive the car. It needs fuel injector, accelerator, lubricator and many other accessories. Lubricating oil is needed even at starting stage otherwise the engine will cease. Entrepreneurship is a key factor in promoting growth in output and employment. Consequently, to encourage new start-ups, most governments in developed countries have created public venture capital programmes and encourage promotion of private venture capital firms. Venture capital is a means of financing growing private companies. Finance may be required as seed capital, for the startup, development/expansion or purchase of a company via a mechanism such as in a management buyout. Both establishing a new business as well as a growing businesses always requires capital. There are a number of different ways to fund new business and its growth. These include the owner's own capital, arranging debt finance or seeking an equity partner, as is the case with venture capital. With venture capital, the venture capitalist acquires an agreed proportion of the equity of the company in return for the requisite funding. Equity finance offers the significant advantage of having no interest charges. It is patient capital that seeks a return through long-term capital gain rather than immediate and regular interest payments. Venture capital investors are, therefore, exposed to the risk of the company failing. When venture capitalists invest in a business they become part-owners and typically require a seat on the company's board of directors. They tend to take a minority share in the company and usually do not take day-to-day control. Rather, professional venture capitalists act as mentors and aim to provide support and advice on a range of management and technical issues to assist the company to develop its full potential. Surveys, worldwide, consistently rate the management support as the most important contribution of a venture capital firm. There are many sources of capital, but only a venture capitalist can provide experienced management input gained by helping many other companies successfully conquer the inevitable problems and growing pains. *A. Sahay, Professor of Strategic Management & Entrepreneurship, Institute, Gurgaon Management Development

Venture capital has a number of advantages over other forms of finance, such as: • Finance - The venture capitalist injects long-term equity finance, which provides a solid capital base for future growth. The ven ture capitalist may also be capable of providing additional • • • rounds of funding should it be required to finance growth. Business Partner -...

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