To ensure that the entrepreneur retains managerial control and the VCI receives a running yield during the early years when the equity portion is unlikely to yield any return, instruments are also used by vets. They include, in addition to conventional loans, income non-convertible debentures, partly convertible debentures, fully convertible debentures, zero est bonds, secured premium notes and deep discount bonds.
This is a form of loan finance without any pre-determined repayment such or interest rate. The supplier of such loans recover a specified of sales towards recovery of the principal as well as revenue in a predetermined ratio, usually 50:10, The sales is known as royalty. The investor stands to gain lose depending on whether the a sales are higher lower than the projected sales, Conditional loan in a sense, is quasi-equity instrument.
These arc modified to the requirements of venture capital financing. They carries lower interest initially which increases after commercial production commences. A small royalty is additionally charged to cover the interest foregone during the initial years. Although the repayment of the principal is based on a pre-stipulated schedule, VCIs usually do not in VCI mortgage other security.