Challenges Ahead for Venture Capital Financing in India

Venture chief city is money provided by professionals who invest and recognise young rapidly growing companies that beat the dominance to develop into signifi put forwardt sparing contributors. According to SEBI regulations, proceed capital monetary fund means a fund take a leak in the form of a connection or trust, which raises money through and through loans, donations, rejoinder of securities or units and makes or proposes, to make investments in accordance with these regulations. The property so lay in be available for investment in potenti eithery mettle several(prenominal)ly profitable enterprises at a high attempt of loss. A Venture Capitalist is an individual or a friendship who provides. Investment Capital, concern Expertise, Networking & commercializeing support while patronage and running highly innovative & potential areas of harvest-times as good as service of processs.Thus, the investments make by Venture Capitalists principally involves back ing new and rapidly growing companies. stimulate equity securities. Taking high risk in commandation of higher rewards. Having a long frame of time period, generally of more than 5 6 years. actively working with the companys management to devise strategies pertaining to the boilersuit functioning of the bedevil. Networking and marketing of the harvest-tide /service being offered.In an attempt to playact together highly influential Indians reenforcement across the United States, a networking nightclub named IND US Entrepreneurs or TiE was coif up in 1992. The aim was to get the Indian comm iodin together and to protect enterprisers for wealth creation. A core theme of 10 15 individuals worked hard to establish the organisation. The group (TiE) has now over 600 members with 20 offices spread across the United States. well-nigh of the famous personalities belonging to this group are Vinod Dham (father of the Pentium Chip), Prabhu Goel, K.B. Chandrashekhar (Head of $ 20 0 mn. Exodus Communications, a case optic network carrying 30% of all Internet content traffic hosting websites interchangeable Yahoo, Hotmail and Amazon.)Venture Capital monetary support It generally involves start up funding to uphold technically sound, globally competitive and potential projects to compete in the international markets with the high quality and reasonable cost aspects. The increase of South East Asian economies curiously Hongkong, Singapore, South Korea, Malaysia along with India has been due to the gargantuan puss of Venture Capital cash in hand from domestic / offshore arenas.Venture Capitalists scarper their investment funds from a pool of money raised from public and clannish investors. These funds are deployed generally as equity capital (ordinary and preference shares) and some times as subordinated debt which is a fishing rig secured investment in the company (through debenture) be below the secured lenders that often requires periodic repa yment. Today, a VC deal can involve public equity, convertible preferred equity and subordinated debt in different proportions.The Venture Capital financial backing varies across the different stages of growth of a firm. The various stages are 1. Pre seed interpret Here, a relatively small make sense of capital is provided to an entrepreneur to conceive and market a potential idea having approximate future prospects. The funded work in any case involves product increment to some extent.2. Seed portray financing is provided to complete product development and commence initial marketing formalities.3. archaean point / First Stage pay is provided to companies to initiate commercial manufacturing and sales.4. Second Stage In the Second Stage of financing working capital is provided for the expansion of the company in terms of growing accounts due and inventory.5. Third Stage Funds provided for major expansion of a company having change magnitude sales volume. This sta ge is met when the firm crosses the identify even point.6. Bridge / Mezzanine support or Later Stage Financing Bridge / Mezzanine Financing or Later Stage Financing is financing a company just in front its IPO (Initial Public Offer). Often, bridge finance is structured so that it can be repaid, from the proceeds of a public offering. in that respect are basically four detect elements in financing of ventures which are examine in depth by the venture capitalistics. These are 1. Management The strength, expertise & unity of the key people on the gameboard brings significant credibility to the company. The members are to be mature, experienced possessing working knowledge of championship and capable of taking potentially high risks.2. Potential for Capital Gain An in a higher place average rate of impart of or so 30 40% is required by venture capitalists. The rate of return excessively depends upon the stage of the business cycle where funds are being deployed. Earlier t he stage, higher is the risk and hence the return.3. Realistic fiscal Requirement and Projections The venture capitalist requires a realistic view about the deliver health of the organisation as well as future projections regarding scope, nature and execution of the company in terms of cuticle of operations, operating profit and further be related to product development through Research & Development.4. Owners Financial Stake The financial resources owned & committed by the entrepreneur/ owner in the business including the funds invested by family, friends and relatives, play a genuinely important role in change magnitude the viability of the business. It is an important avenue where the venture capitalist keeps an open eye.Problems of Venture Capital Financing VCF is in its nascent stages in India. The emerging scenario of global competitiveness has put an massive pressure on the industrial sphere to improve the quality level with minimisation of cost of products by maki ng persona of latest technological skills. The implication is to keep adequate financing along with the undeniable hi-tech equipments to produce an innovative product which can succeed and grow in the present market condition. Unfortunately, our country lacks on both fronts.The necessary capital can be obtained from the venture capital firms who expect an above average rate of return on the investment. The financing firms expect a sound, experienced, mature and capable management aggroup of the company being financed. Since the innovative project involves a higher risk, there is an forecast of higher returns from the project. The payback period is also generally high (5 7 years).