Question

1. What is a professional venture capitalist? How does this occupation differ from that of an angel investor? Do you think there is an advantage to being one type of investor or the other?

2. Why should entrepreneurs care what pressures venture capitalists face in carrying out their professional money management (intermediation) function?

Answer 1

Venture Capital

(1). Venture capital means financial investment in highly risky venture with the objective of earning highy return.

Venture capitalists have invested in similar firms and projects before, have more knowledge and experience. this knowledge and experience are the outcomes of the experiments through the successes and failure from previous ventures, so they know what works and what does not, and how it work.

Edupristine.Venture Capital.googl.com

Advantages of Venture Capital

• Venture capital creates new industry
• Venture capitalists helps in developing entrepreneurial talents and retaining the talents with in the economy.
• VCs creates competitiveness
• VCs creates cash flows and revenue
• VCs induce the economic growth and increases the GDP
• VCs promote good governance practices in VC backed companies
• VSs support innovations and R&D in their funded ventures.

Types of venture capital

1. VSFs promoted by specialized financial institutions
2. VCFs by state level financial institutions
3. VCFs by commercial banks
4. Private venture capital fund
5. Oversese/ foreign VCFs

(2). Venture capital is required by a firm at different stages of growth and development. the venture capital funds recognized different stage financing as follow;

(i) Early stage financing

(ii) Later stage financing

Early stage financing

In this stage the firm is undertakes production and need additional funds for selling its products. the capital is provided for development R&D and initial marketing. int involves different types of financing are...

• Seed capital / seed money - finance is needed for developing a products in the initial stages.
• Start up capital - start up is a stage when product or services is commercialized
• First round financing - capital is required for early manufacturing and marketing expenses.
• Second round financing - finance is provided at a stage when product has been launched in the market but not earned enough profits to meet further capital needs

Later stage financing

This financing stages involves established business which requires additional financial support but cannot resot to public issue of capital

• Development fiance - it is financing for establishing which require additional capital but cannot resort to public issue.
• Bridge financing - it provide fiance for expansion of an existing business in terms of expansion of production facility, new products or new market, acquisition of existing firms etc..
• Replacement fiance - it provides for the financing of shares.
• Buyouts or Acquisition financing - it provides finance for acquisition or buyouts.
• Turnaround financing - it means buying the control of a sick company.

Venture capital process

Venture capital process involves the following steps;

1. Selection of investment proposal
2. Valuation of the proposal
3. Structuring the deal
4. Posting investment services
5. Evaluation and monitoring
6. Exit

Dr.A.J.George,Anish Tomas.(November 25, 2010).Financial Services.Prakash Publications