The Venture Capital plays a vital part in developing and growing innovative entrepreneurship in India. Earlier, the financial institutions provided venture capital funding.
‘Venture Capital’ is a crucial funding source for small and medium-sized enterprises and fintech startups with very few paths to raise funding. Although such a company may have an enormous potential in the future to earn significant profits and become a more prominent company. But ordinary investors generally do not want to invest in them because of the risk of such investment.
The concept of risk capital has emerged to provide financing for such entrepreneurial talents and corporate skills. Venture capital is, in some ways, an investment in the formation and establishment of small companies at the beginning of their lives.
Professionals from different fields comprise venture capitalist in India. After scrutiny of projects, they provide funds (called Venture Capital Fund) for these companies. Their main objective is to make enormous returns on their investment, but their concepts differ totally from the traditional moneylenders. You are well aware that if some of the projects suffer losses, others compensate for the same because of high revenue.
Stages of VCF
The risk capital recognizes various financing phases, namely:
1. Early-stage funding
This is the first stage when the company manufactures and requires additional funds to sell its products. It includes seed / initial financing to support an entrepreneur’s concept or idea. Product development, R&D, employing people for work from home jobs, and initial marketing are provided with capital.
2. Expansion funding
The second stage includes operating capital financing and business expansion. Development funds are required to make the public problem easier.
3. Financing Acquisition/Buyout
The latter phase includes:
- Acquisition funding to acquire another company for further growth.
- Financing for managerial purchases to enable companies and investors to purchase an existing product or business line.
- Financing for the revitalization and revival of sick businesses.
Grouping of Venture Capital Funds (VCF’s)
In India, VCFs can be divided into the following groups in India:
1. Supported by the Central Government controlled development finance organizations, for example:-
- ICICI Venture Funds Ltd.
- IFCI Venture Capital Funds Limited (IVCF)
- SIDBI Venture Capital Limited (SVCL)
2. Supported by State Government controlled development finance organizations, for example:-
- Gujarat Venture Finance Limited (GVFL)
- Kerala Venture Capital Fund Pvt Ltd.
- Punjab Infotech Venture Fund
- Hyderabad Information Technology Venture Enterprises Limited (HITVEL)
3. Supported by Public Banks, for example:-
- Canbank Venture Capital Fund
- SBI Capital Markets Limited
4. Supported by Private sector companies, for example:-
- IL&FS Trust Company Limited
- Infinity Venture India Fund
5. Authorized as an overseas VCF, for example:-
- Walden International Investment Group
- SEAF India Investment & Growth Fund
- BTS India Private Equity Fund Limited
Regulation of VCF’s
The Securities and Exchange Board of India (SEBI) governs all these venture capital funds. SEBI is the nodal agency for both domestic and international risk capital funds registration and regulation. Accordingly, the Securities and Exchange Board of India (Venture Capital Funds) Regulations 1996 and the Securities and Exchange Board of India (Foreign Venture Capital Investors) Regulations 2000 have made these provisions.