Venture capital is a new form of financing that has come as a boon for young entrepreneurs and plays a strategic role in financing small-scale and high-tech companies and venture firms. In all developed and developing nations it has made its mark by providing equity capital so they are more like equity partners rather than financiers and benefit through capital gains.
Since young and growing companies need capital at the right time, not only to float their company in the market, but also to survive in the long term. When financial institutions, such as banks and other private financial organizations, are hesitant to take the risk of seed funding, since the fledgling company’s credibility has not been established, venture capital firms enter the foray to finance. the project in the form of capital which can be termed as “high risk capital”.
Although there is a common misconception that the interest of VC firms is primarily due to cutting-edge technology in the industry, this is not always the case with all VC firms. A venture capitalist associates high risk with huge profit. Of course after thoroughly analyzing the prospects and consequences and the feasibility of the project. The venture capitalist becomes the entrepreneur’s partner in his business. True venture capital funding need not be limited to high-tech products, any risky idea with great potential can be funded, and venture capital is an all-powerful mechanism for promoting and institutionalizing entrepreneurship.
Primarily venture capital focuses on growth. A venture capitalist is very interested in seeing how a small business grows into a larger one. He helps set up the business, finances it, and comes all the time to see the company grow. If it is a potential equity stake, the venture capitalist can exit the partnership once the business is profitable and recoup their money by selling shares or convertible securities. If the company opts for a long-term investment from venture capital funding, the funder has to develop a long-term investment attitude, say five or ten years to allow the company to make big profits.
Another form of financing is that the venture capitalist has his hands in the management so he becomes an active participant in the operations of the company and his thinking is streamlined as to how to multiply and make quick money which is a win-win situation. for both. sides Not just finance, the venture capitalist also contributes marketing, technology upgrading, and management skills to the benefit of the new company.
The venture capitalist’s management approach is significantly different from that of a banker whose primary concern is collateral and asset values. He keeps his hands off management and plays it safe. Nor can the venture capitalist behave like a stock investor who invests money without in-depth knowledge of the business and management of the company. He combines the qualities of a banker, a stock investor and an entrepreneur in one.
The latest trend is for popular and giant software companies to promote their content through start-ups, providing the latest technology, training and expertise in addition to funding, thus expanding the geographic area of operations of the parent company and also expands its territory to scale greater heights. Venture capital firms should focus on fostering the growth and development of the business and need not limit their interests solely to financing technology, infrastructure, information technology services, and the like. They need to diversify their investment in various sectors and the reactivation of sick units can even be considered as one of the options if there is potential in the business.