Venture Capital is investing in companies that have undeveloped or evolving products or revenue. It lays particular stress on entrepreneurial attempts and less mature businesses. Venture Capitalists are those who are desirous to accept high risk in order to attain a much more higher rate of return. A Venture Capital fund invests for a very long term, has a relatively small number of “stocks,” and seeks very high returns. If we try to explain Venture Capital financing from both perspectives of the investor side and the entrepreneur side, we should ask and answer those two questions: What does an Investor (also known as a Venture Capitalist) have and what does an entrepreneur have? Venture Capitalists have funds, or they have the ability to raise capital. They have experience in building companies creating wealth from the very beginning of a company up to the exit event. They have associates to help in formation of the company’s network. On the other hand, entrepreneurs have avant‐garde ideas, processes or products. They have the needed skill and practice to build and retain this business The Venture Capitalists invest in companies, because they are looking for opportunities of gaining considerably higher returns than in stock market returns. And entrepreneurs just need the money to fully cash in on the opportunity of their product/service. Thus, the Venture Capital .
Industry makes these two parties to come together and meet each other’s needsThere are four stages in Venture Capital financing. They can be summarized as:
relations – social capitVCs want two things:
be worth the invested capital.
idea into the ground.
The criteria is as follows:
2. High Growth Potential .
1. Does the company's product or service have a clear, differentiated advantage in its
to theentry of other competitors who can duplicate their advantage?
unanticipated problems and opportunities that ari along the voyage to success?
the team of managers who will be spending their money.
IV. Operational Improvement: Operational improvement is one of the most widely and successfully applied value creation strategies by VC Firms and enables the portfolio companies to adopt systems and approaches that will continue to create value after VC Firms’ exit. Operational improvement is achieved by improvement of existing or as the case may be, introduction of new management information and reporting systems and also development and implementation of new IT infrastructure, which are standard applications by VC Firms for its portfolio companies, to a greater extent particularly for investments completed recently.