Venture Capitalist

Who is Venture Capitalist?

When a business is commenced, it requires money to rent/buy land, building, machinery, further salaries to employees etc. For all afore mentioned reasons capital is required. One can use his personal savings but in many cases it won’t be sufficient or one can always go for bank loan but banks might not find enough potential in the entrepreneurial idea/start-up. Even if bank lends the money it might be difficult to pay the high EMIs in the initial stages of the company. This is where a venture capitalist comes into the picture.

Venture capital provides long-term, committed share capital, to help start-up companies grow. Venture Capital firms have a pool of money which is can range from $20 million to $1.5 billion) which they invest in number of start-up companies (say 5-7 companies) which could be a dot com company or alternate energy resource company. The founders of such companies who are in need capital make a business plan and present it to the Venture Capitalists and if they find enough potential in the plan then they lend money to that start-up company. Venture capitalists hardly give a start-up company all the money it will need at once. At each stage they give sufficient funds to reach the next major target and typically there are 3-4 such stages of funding.

In return of the investment made by the venture capitalist, the start-up generally gives some equity stake of the company to the Venture Capital firm. Venture Capital firms might also be given some control over decision making like where and how to spend, which key employee to hire, etc. These venture capitalists may or may not have past experience of the business in which they intend to invest in, because they are more interested in the potential of the business and the returns they would get.

There venture capitalist can be classified on the basis of the whether it is funding companies in a) Specific sectors/ industries

b) National or international

c) Based on new and innovative ideas

Indian Private Equity and Venture Capital association (IVCA) is a member based Indian organisation that represents venture capitalists and promotes the industry within India.

Nexus is one of India’s largest venture capital funds.