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Venture Capital Financing

The first generation entrepreneurs have to faces the shortage of equity capital. Banks and financial institutions generally require a sizeable equity contribution from the promoter of a project. Technocrats ad scientists who wants to set business ventures cannot provide much capital. Venture capital funds provides the much needed capital to them. A high degree of risk is involved in venture capital financing due to the high probability of loss in new ventures. Te venture capital fund bears high risks in the hope of a high reward from the success fo the project. The technocrat promoter contributes his idea and management support. Once the venture capital fund contributes disk capital and management support. Once the venture settles done to profitable working, banks and retail investors are willing to invest in it. A t this stage the venture capital funds sells out his shareholding in the enterprise.

Thus, ventures capital is the risk capital which is required to launch and operate a business venture in the initial stages. under SEBI (Venture Capital Funds) Regulations 1996, a venture capital fund is defined as “a fund established in the form of a trust or company included a body corporate and registered under these regulations which:

(i)    has a dedicated pool a capital
(ii)    raised n a manner specified in the regulations.
(iii)    invests in ventures capital undertakings in accordance with these regulations.

The main features of venture capital are as follows:

(i)    Investments are made in those enterprises which are new and using new technology of product to produce new products, having an expectation of higher profits.

(ii)    Generally the investments are in equity instruments.

(iii)    The venture capital investment is highly illiquid. In other words, its is not subject to repayment on demand.

(iv)    Investor’s return is taxed as capital gain rather than ordinary income.

(v)    The venture capital investors cannot interfere in the day-t-day management of the enterprise but to protect and enhance the investment they keep close contact with the promoter(s).

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