Hello, Everyone, it has been a long time since my last post, and it is the usual excuse of the same old story aka the kids, husband and other familial responsibilities. So lets jump right into the topic and I am writing about Venture Capital.
Venture Capital is a funding process for Start-ups and the small businesses to spearhead their projects without any financial obstacles. Venture capital is the funding provided by a private person also known as Venture Capitalists. Private institutional firms can also provide Venture Capital. The Venture capital comes with high risk as well as the high chance of earning significant returns.
Venture Capital can also be termed as the financial helpline for the companies or start-ups who have a brilliant product but, not enough resources. Venture capital cases are more commonly found in the field of software and intellectual properties.
The financing can happen in these three stages of a business cycle:
- Early stage financing
- Expansion financing
- Acquisition financing
Early stage financing occurs when the during the conception of the product’s conception or idea generation. It usually needs a low budget. This stage also doubles up as a seeding phase.
The Expansion financing involves operational stage viz the production process, marketing, and development of Research and Design(R&D).
The Acquisition financing is for businesses who are short of funds for buying another company.
What are the features of Venture Capital?
- It comes with high risk as there is the option of flunking out.
- There is no liquidity until the business takes off
- It has a long-time horizon for realizing the true potential of the idea.
- The Venture Capitalist will require equity participation and capital gains.
- Innovative and out of the box products attract Venture capitalists.
- Venture capitalists are part of the management.
The steps of Venture Capital:
It usually involves four stages:
- Idea generation:
A well-detailed business plan has to be presented by the owner or the entrepreneur to Venture Capitalist. The business plan should include the summary of the proposal, the opportunities of product, the size of the market, financial projections and the details of management.
- Introductory phase:
Just two people are getting to know each other, but it is purely business.
- Due Diligence:
This is Frequently Asked Question stage where the VC’s clear their doubts.
- The Agreement:
Basically, an agreement that says the VC’s are ready to fund the project by abiding the conditions that both parties agree on.
Types of Venture Capital funding:
- Seed money: Funding for idea generation and proving its credibility.
- Start-ups: Marketing and product development expenses
- First –Stage: Manufacturing and early sales support
- Second-Round: Operational capital to generate profits
- Third-Round: Funds for the expanding the new beneficial company. It is also known as the “Mezzanine financing.”
- Fourth-Round: It is the “ Going Public” process and known as “ Calledbridge financing.”
The Venture Capitalist also have an “Exit Route.” where they can cash in their investment from the following methods:
- Initial Public Offering
- Buyback of the shares
- Merging and Acquisition
- Selling off the company to another investor.
So, this is a general markup of the Venture capital and its process. Feel free to add any points I might have missed. Bye till my next post. Till then
Namaste, Au Revoir, Saynora, and Vanakkam to my readers out there where ever you are and whoever you are.