Small Business Investment Company
This provides an impetus to banks to participate in ventures in the form of equity and long term debt. It can, however, invest only in small concerns. It is prohibited from investing more than 20 per cent of its capital and reserves not is it allowed to require controlling interest in a single company. The loans must be for more than five years. It has a very flexible structure of equity investments.
The last stage in venture capital financing is the exit to realize the investment 50 as to make a minimize losses. In fact, the potential exit in terms of the realization horizon (exit timing) has be planned at the time of the initial investment itself. The precise timing of exit depends on several factors such as nature of the venture, the extent and type of financial stakes the state of all potential competition, market conditions, the style of functioning as well as perception VCIs and so on. For example, early stage financing typically takes a long term view of eventual utilization exit from five to seven years. In case of stage financing the realization horizon may be shorter in the range of three to five years.
The important aspect of the exit stage of venture capital financing is the decision regarding the investments realization alternatives which are related to the type of investment, namely, equity quasi equity and debt instruments.
Exit of Debt Instruments
Exit in case of debt component of venture capital financing, in contrast with equity quasi equity component, has to normally follow the pre-determined route. In case of a normal loan, the exit is possible only at the end of the period of loan. If the loan agreement limits, whole or part can be converted into equity prior to that. For conditional loans, exit, earlier n projected at the time of initial investment, is possible on the basis of lumpsum repayment with the expectations of the VCI of the likely return on the loan.