Meaning of Venture Capital Fund Commerce YouTube Lecture Handouts

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Topics to be covered are

  • Meaning of Venture Capital Fund
  • History of Venture Capital
  • Features of Venture Capital investments
  • Stages in venture capital investing
  • Process of venture capital
  • What are the traits needed for a Venture Capital investment
  • Key elements in financing of ventures studied by the venture capitalists
  • Advantages of venture capital Financing
  • Problems of venture capital financing

Meaning of Venture Capital Fund

The term venture capital fund is usually used to denote mutual funds or institutional investors that provide equity finance or risk capital to little known, unregistered, highly risky, young and small private business.

History of Venture Capital

Venture capital is a subset of private equity (PE) . While the roots of PE can be traced back to the 19th century, venture capital only developed as an industry after the Second World War. Harvard Business School professor Georges Doriot is generally considered the “Father of Venture Capital” . He started the American Research and Development Corporation (ARD) in 1946 and raised a $ 3.5 million fund to invest in companies that commercialized technologies developed during WWII.

Features of Venture Capital Investments

  • Financing of new companies
  • High Risk
  • Long term horizon
  • Equity participation and capital gains
  • Venture capital investments are made in innovative projects
  • Suppliers of venture capital participate in the management of the company

Stages in Venture Capital Investing

  • Seed: The first stage of venture capital financing. Seed financing are often comparatively modest amounts of capital provided to investors or entrepreneurs to finance the early development of a new product or service.
  • Early Stage: For companies that are able to begin operations, but are not yet at the stage of commercial manufacturing and sales.
  • Start-up: Start-up financing provides funds to companies for product-development and initial marketing.
  • First Stage: Capital is provided to initiate commercial manufacturing and sales.
  • Formative Stage: Financing includes seed stage and early stage.
  • Later Stage: Capital provided after commercial manufacturing and sales, but before any initial public offering.

Process of Venture Capital

  • Deal Origination
  • Screening
  • Evaluation
  • Deal Negotiation
  • Post Investment Activity
  • Exit Plan

What Are the Traits Needed for a Venture Capital Investment

  • An enterprises, which has the potential to grow in near future.
  • The investment should be for a long time like from two to ten years.
  • The risk should be high of the ongoing projects in the concern that it also ensure high amount of profits.
  • Once the funding is done, the investor must remain active.

Key Elements in Financing of Ventures Studied by the Venture Capitalists

  • Management
  • Potential for Capital Gain
  • Realistic Financial Requirement and Projections
  • Owner՚s Financial Stake

Advantages of Venture Capital Financing

  • Business consultations
  • Management consultations
  • Human resources
  • Additional resources

Problems of Venture Capital Financing

  • Requirement of an experienced management team.
  • Requirement of rate of return on investment an above average
  • Longer payback
  • Uncertainty regarding the success of the product in the market
  • Questions regarding the infrastructure details of production like plant location, accessibility, relationship with the suppliers and creditors, transportation facilities, labour availability etc.
  • Major competitors and their market share
  • Skills and training required

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