Venture Capital

Introduction

• Venture capital is a type of private equity financing that involves investment in earlier stages of any business which require capital. 
• In venture capital investment, the venture capitalist or investors will receive an equity stake in the business in the form of shares as return.
• These investments are usually characterized as high-risk/high-return opportunities. 

Features of Venture Capital

• Finance New Ventures:  Venture capital is a convenient source of raising finance for startup and early-stage businesses. 
• High Risk: These types of investments are very risky in nature. Venture capital investments involve putting funds by individuals into new ventures who are in their early stage and carry a lot of uncertainty of succeeding in their objectives. The return of investments is totally dependent upon the growth rate of companies.  
• Long-Term Investments: Venture capital investments are illiquid in nature. These types of investment cannot be encashed by investors in the short term. Venture capital investments are long term investments which can be either in the form of loan or convertible securities. 
• Equity Participation: It involves financing of ventures through equity participation. Venture capitalists make investments in startups by buying their equity capital. These investors aim at making a large amount of capital gain by selling all the shares held by them once they become profitable. 
• Participation In Management: Venture capitalists by doing investment in equity capital of a company take part in management of the business. They do not merely provide finance to startup companies, but also provide management expertise.

Note: Venture Capitals in India are regulated by the Securities and Exchange Board of India.