Start-up Companies, which have the potential to grow, need a certain amount of investment. These companies cannot get finances from the public, as they don’t have access to secondary markets. In such cases, wealthy investors invest money in businesses like start ups, small and medium sized business or enterprises that have long-term business prospects. This capital is known as venture capital and the investors are known as venture capitalists.
Venture capital is a private investment made by investors into new businesses like start-ups and small and medium size enterprises. This type of investment generally comes from wealthy investors and high net-worth individuals and 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 an equity stake in the business, rather than a loan.
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The venture capital investment involves the following process:
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Venture capital fund also called VCF, is a type of investment fund that manages money from different investors with the aim to provide capital to small and medium sized enterprises and start-ups that have a strong growth potential. Most venture capital comes from a group of wealthy investors, investment banks and other financial institutions that pool such investments or partnerships.
In India, these institutions are regulated through the guidelines issued by the Securities and Exchange Board of India. The laws relating to venture capital come under the SEBI (Venture capital funds) Regulations 1996. The venture capital fund regulations by the Securities and Exchange Board of India, are a comprehensive set of laws to be followed by the venture capital funds in India. These laws encompass everything from the registration of venture capital funds to the action which must be taken in case of default.
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Venture Capital Funds can be divided into three main types. Listed below are the three main types of venture capital and their sub-categories:
Discussed below are some of the important features of venture capital:
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