Venture capital has, somehow, come to acquire various connotations. It is defined as an equity related investment in a growth oriented small medium business to enable investors to a cost corporate objectives, in return for minority shareholding in the business or the irrevocable to acquire it.
Venture capital is a way in which investors support entrepreneurial talent with finance and business skills to exploit market opportunities and, thus, to obtain long term capital gains. It is the provision of risk bearing capital, usually in the form of participation in equity, to companies with growth potential.
In addition, it provides some value addition in the form of management advice and contribute to over all strategy. The relatively high risks are compensated by the possibility of high usually through substantial capital gains in the medium term.
According to a very widely accepted definition venture capital is described as a separate class often labelled as private equity. Private equity investment sits at the furthest end of the reward spectrum from Government bonds and can broadly describe equity investment in private companies not quoted in the stock market.
Based on the above description of venture capital, some of the distinguishing features of against other capital investments can be identified as:
Venture capital is basically equity finance in relatively new companies when it is go to the capital market to raise funds. However, such investment is not exclusive equity investment. It can also be made in the form of an finance convertible debt ensure a running yield on the portfolio of venture capitalists. Nonetheless, the objective of venture capital financing is to earn capital equity investment at the of exist and debt financing is only supplementary.
It is a long term investment in growth oriented small medium firms. The, acquisition outstanding shares from other shareholders cannot be considered venture capital investment. It is new, long term capital that is injected to enable the business to grow rapidly.
There is a substantial degree of active involvement of the venture capital institutions the promoters of the venture capital undertakings. It means such finance also provide business skills to the investees firms which is termed as hands on approach manage venture capitalists do not seek acquire a majority controlling interest in investees, though under special circumstance and for a limited period, they might have controlling interest. But the objective b to provide business skill only and interfere in management.
Venture capital financing involves spectrum. Some of the ventures very high return is to more than compensate for heavy losses on others which also may had potential of profitable returns. The returns in such financing essentially the gains at the time of exit from dis-investments in the capital market.
Venture capital is not technology finance though technology finance may form a sub venture capital financing. The concept of venture capital embraces much more than high technology oriented companies. It essentially involves the financing of, and medium sized firm through early stages of their are stable and raise from the conventional, industrial finance market. The capital fairly wide.
In briefs venture capital institution is a financial intermediary between investors to high potential returns and entrepreneurs who need institutional capital as they are yet nor able to go to the public.