Importance Of Venture Capital

VENTURE CAPITAL

There will be entrepreneurs who will be technically qualified but they will not be having the required amount of capital to finance their business.

Venture capital is a type of funding for a new or growing business. It usually comes from venture capital firms that specialize in building high risk financial portfolios. With venture capital, the venture capital firm gives funding to the startup company in exchange to the returns in the future.

IMPORTANCE OF VENTURE CAPITAL FINANCING

The following are the importance of venture capital financing.

1. Promoting Entrepreneurs: Just as a scientist brings out his laboratory findings to reality and makes it commercially successful, similarly, an entrepreneur converts his technical know-how

Brings out latent talent: While funding entrepreneurs, the venture capital institutions give more thrust to potential talent of the borrower which helps in the growth of the borrowing concern.

5. Promoting exports: The Venture capital institution encourages export oriented units because of which there is more foreign exchange earnings of the country which improves the country’s standards

6. As Catalyst: A venture capital institution acts as more as a catalyst in improving the financial and managerial talents of the borrowing concern. The borrowing concerns will be more keen to become self dependent and will take necessary measures to repay the loan.

7. Creates more employment opportunities: By promoting entrepreneurship, venture capital institutions are encouraging self employment and this will motivate more educated unemployed to take up new ventures which have not been attempted so far.

8. Brings financial viability: Through their assistance, the venture capital institutions not only improve the borrowing concern but create a situation whereby they can raise their own capital through the capital market. In the process they strengthen the capital market also.

9. Helps technological growth: Modern technology will be put to use in the country when financial institutions encourage business ventures with new

Early Stage Financing:

Early stage financing has three sub divisions seed financing, start up financing and first stage financing. Seed financing is basically a small amount that an entrepreneur receives for the purpose of being eligible for a start up loan.

Start up financing is given to companies for the purpose of finishing the development of products and services. However, this type of venture capital may also be used for initial marketing as well. Companies that have spent all their starting capital and need finance for beginning business activities at the full-scale are the major beneficiaries of the First Stage Financing.

Expansion Financing:

Expansion financing is a second-stage financing, bridge financing and third stage financing or mezzanine financing. Second-stage financing is provided to companies for the purpose of beginning their expansion.

Second-stage financing is also known as mezzanine financing. It is provided basically for the purpose of assisting a particular company to expand in a major way. Bridge financing is useful in many ways. It may be provided as a short term interest only finance option as well as a form of monetary assistance to companies that employ the Initial Public Offers as a major business