In this age where start-ups are on the rise, the importance of business funding is greatly felt. A company that has the potential to grow needs a certain amount of investment in its initial phase to support growth and business activities. These companies cannot raise funds from the primary market as they don’t have access to share markets. In such cases, the young entrepreneurs depend on venture capitalists, seed funding and bank loans for procuring funds. Investors, after assessment of the business prospects, invest their money in start ups, small and medium sized business or enterprises that tend to have long-term growth. This capital is known as venture capital and the investors are known as venture capitalists.
The term Venture Capital is generally used to denote an individual or institutional investor who provides investments or risk capital to small private businesses. Venture Capital is a private investment made by investors to new businesses like start-ups and small and medium size enterprises. This type of investments generally involve procurement of funds from wealthy investors and high net-worth individuals that is pooled together by dedicated investment firms. Venture capital investment is also known as risk capital financing as it involves the risk of losing money if the venture does not succeed. The capital investment is done in exchange for equity stakes in the business rather being given as a loan.
Discussed below are some of the important features of Venture Capital:
SEE ALSO: Venture Capital In India
Listed below are some of the advantages and disadvantages of venture capital investment:
Loss of control: there are certain drawbacks related to venture capital funding. In many cases, the venture capitalist partners will want to be involved in business decision making and exercise complete control. The reason for this involvement is that the Venture Capitalists have parked their funds in these businesses and they do not want to end up losing money. In such circumstances, they may not be willing to invest any additional capital even if it is required for backing up the business.
Uncertainty: depending on the size of shares owned by the venture capitalist firms, which could be more than 50%, you might lose management control. Sometimes, this also leads to giving up ownership in your own firm.
Venture capital in India provides the much-needed risk capital that is required for the small and medium businesses to grow. Venture capital funding has ensured newer avenues and expansion prospects for start-ups. Businesses can focus on growth and once they avail the necessary funds from venture capital.
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