A new private company which does not want to take finance from public markets may have their eyes on venture capital. Venture capital is provided to any business firm by those who are willing to invest in the projects that are risky but have a promising future prospect. Such funds are known as venture capital funds.
Venture capital has now gained a certain degree of densification, maturity and edification in the US. The phenomenon of venture capital is new for the Indians but it was one of the much talked things about financing alternatives in India in and around the nineties.
In this article we will talk about the venture capital investment and the venture capital industry in India.
What is Venture capital investment?
Venture capital investment is one of the most flexible form of financing technology based or innovative business firms. It is a more wide way of getting finances for investment in business enterprises which hold a bright future in terms of profit and as well as growth.
Venture capital is invested as equity shares and not as any type of a loan. Because of investment in shares, venture capital is also known as risk capital. The investment is majorly in risky projects.
Broadly speaking, venture capital is a source of necessary risk capital like financing for shares. It has now emerged as the best financing alternative in developing as well as developed countries. Approximately 70 countries provide the facility of venture capital investment to the business enterprises.
For a virtual capital investment, you need to have the following traits:
- A business firm which has the potential to grow in near future
- The investment should be for a long time like from two to ten years.
- The business should have had invested in shares of established business enterprises which hold a strong history of profits.
- The risk level should be high of the ongoing projects in the firm that also ensure high amount of profits.
- Once the funding is done, the investor must remain active.
Some of the examples of venture capital investment that were made in the past are as follows:
- A software development based company steps into telecommunication switch in Israel.
- A hand tool manufacturer in china with low cost products and high operational efficiency but the best quality.
- An exporter of horticultural products in Africa
- A national store chain in and around India
These examples show how investments are made in venture capital. They show growth in business firms and a high level of sales and profitability which is best for an investor.
Now let us see the scenario of venture capital investment in India.
Growth of Venture Capital in India
Venture Capital in India was known since nineties era. It is now that it has successfully emerged for all the business firms that take up risky projects and have high growth prospects as well. Venture Capital in India is provided as risk capital in the forms of shares, seed capital and other similar means.
In 1988, ICICI emerge as a venture capital provider with unit trust of India. And now, there are a number of venture capital institutes in India. Financial banks like ICICI have stepped into this and have their own venture capital subsidiaries. Apart from Indian investors, international companies too have settled in India as a financial institute providing investments to large business firms. It is because of foreign investors that financial markets have developed in India on a large scale. Introduction of western financial philosophies, tight contracts, focus on profitable projects and active involvement in finance was contributed by foreign investors only.
The financial investment process has evolved a lot with time in India. Earlier there were only commercial banks and some financial institutes but now with venture capital investment institutes, India has grown a lot. Business forms now focus on expansion because they can get financial support with venture capital. The scale and quality of the business enterprises have increased in India now. With international competition, there have been a number of growth oriented business firms that have invested in venture capital. All the business firms that deal in information technology, manufacturing products as well as providing contemporary services can opt for venture capital investment in India.