VENTURE CAPITAL AND FINANCIAL RESOURCES: Meaning and definition, features of venture capital, various sources of finance available to entrepreneur and stages of venture capital financing

 MEANING AND DEFINITION OF FINANCE

·       Finance is needed in all types of organization whether large/small or manufacturing /trading.

·      Entrepreneurial finance is a term that encompasses a wide range of activities revolving around the management of financial recourses and other valuable assets.

·     It involves procurement and utilization of funds so that the entrepreneur may be able to carry out the operations effectively and efficiently.

·       Finance involves estimation of funds.

Basic Questions related to investment of funds

1) How much finance is needed?

2) How long the funds are needed for?

3) How quickly the funds are required?

4) What is the main purpose to obtain the finance?

5) What is the size of own assets?

The procurement of funds is one of the toughest challenges an entrepreneur faces and these questions help the entrepreneur to narrow down the suitable options.

VARIOUS SOURCES OF FINANCE AVAILBLE TO AN ENTREPRENEUR

1) Personal Funds.

2) Business Loan.

3) Loan from Family and Friends.

4) Personal Bank Loan.

5) Venture Capital Investors.

6) Government Grant and Subsidies.

7) Syndicated Loan.

8) Loan from Cooperative Societies.

1) Personal Funds:

·         When starting a business, your first investor should be yourself— either with your own cash or with collateral on your assets.

·         This proves to investors and bankers that you have a long term commitment to your project and that you are ready to take risks.

2) Business Loan:

·         A business Loan is specifically intended for business purposes. As with all loans, it involves the creation of a debt, which will be repaid with added interest,

·         A business loan is borrowed capital that companies apply toward expenses that they are unable to apay be themselves.

3) Loan from Family and Friends:

·         He best thing about getting friends and family members to fund your business is that they are less demanding.

·         They will ask you a small compensation in return for their investment. You can also consider making your friend or family member your business partner

 4) Personal Bank Loan:

Bank are financial institutions provide business loan as finance for start-up. But many entrepreneurs also use personal bank loans as a suitable part of their financial structure.

5) Venture Capital Investors:

·          Ventures capital is emerging as an important source of finance for small and medium-sized firms.

·         Generally, venture capital investors provide funds to early-stage startup companies.

·          Venture capital is a means of equity financing for rapidly growing private companies.

·         Venture capitalist is higher risk investors and in accepting these risks, they desire a higher return on their investment.

·         Normally venture capital investors provide funds to a company in exchange for company shares.

6) Government Grant and Subsidies:

·         Government agencies provide financing such as grants and subsidies that may be available to your business.

·         A detailed project description

·         An explanation of the benefits of your project

·         A detailed work plan with full costs • Details of relevant experience and background on key managers

·         Completed application forms when appropriate

7 Syndicated Loans:

·         A syndicated loan is also known as a syndicated bank facility. This is a practice whereby two or more lending financial institutions agreed to provide fund to finance large project.

·         The amount of one syndicated loan is so big such that one lender cannot fund or take on the debt alone.

·         The big companies are usually the borrowers for this type of loan.

VENTURE CAPITAL

·         Venture capital is very important source of financing for a new business. Venture capital is also known as risk capital

·         As defined, ventures involve risk (having uncertain outcome) in the expectation of a sizeable gain. Venture Capital is money invested in businesses that are small; or exist only as an initiative, but have huge potential to grow. The people who invest this money are called venture capitalists (VCs).

·         The venture capital investment is made when a venture capitalist buys shares of such a company and becomes a financial partner in the business.

·         Venture Capital investment is also referred to risk capital or patient risk capital, as it includes the risk of losing the money if the venture doesn’t succeed and takes medium to long term period for the investments to fructify.

FEATURES OF VENTURE CAPITAL

(i) High Degrees of Risk: Venture capital represents financial investment in a highly risk project with the objective of earning a high rate of return.

(ii) Equity Participation: Venture capital financing is, invariably, an actual or potential equity participation wherein the objective of venture capitalist is to make capital gain by selling the shares once the firm becomes profitable.

(iii) Long Term Investment: Venture capital financing is a long term investment. It generally takes a long period to Ancash the investment in securities made by the venture capitalists.

(iv) Participation in Management:  In addition to providing capital, venture capital funds take an active interest in the management of the assisted firms. Thus, the approach of venture capital firms is different from that of a traditional lender of banker.

(v) Fulfill Require amount of capital: In case of banks one may not get the sufficient amount of investment to backup the enterprise. Venture capitalist provides the business with the required amount of investment considering the real time situational needs of the business.

STAGES OF VENTURE CAPITAL FINANCING

1) Seed Money: Seed financing is defined as a small amount that an entrepreneur receives for the purpose of being eligible for a start up loan.

2) Start-up: Start up financing is given to companies for the purpose of finishing the development of products and services.

3) First- Round: Companies that have spent all their starting capital and need finance for beginning business activities at the full-scale are the major beneficiaries of the First stage financing.

4) Second-Round: Second stage financing is provided to companies for the purpose of beginning their expansion. It is provided for the purpose of assisting a particular company to expand in a major way.

5) Third- Round: Also known as Mezzanine financing, this is the money for expanding a newly beneficial company. 6) Forth- Round: Bridge financing may be provided as a short term interest. It is a form of monetary assistance to companies that employ the initial Public Offers as a major business strategy.