Venture Capital generally refers to the funding provided by sophisticated investors to start-up or small companies to grow their business. When the company grows, the venture capital funding increases as the venture capital firm owns a stake in the company. In return, the venture capital firm benefits from the company’s growth. Venture capital funding is also known as risk or patient risk capital, as the VC firm must wait patiently to get the returns.
Although a company can raise venture capital funding at any stage of its existence, venture capital funding is usually raised in the beginning stages of the company. Since venture capital funding is raised in the beginning stages of the company and the funding is significant, the venture capital firm bats for the business’s success. Raising venture capital funding puts the fund managers in your corner.
Features of Venture Capital
As venture capital funding is for the long term, the motivation is long-term capital gains. The chances of venture capital funding are higher if the company is innovative. Venture capital funding can be in the form of equity, debt, loans, etc. Also, it is expected that the venture capital firm will provide the correct advice, counsel, expertise, assistance in negotiations, etc.
Starting and managing a business is difficult, and most entrepreneurs understand this. When the going gets tough, the venture capital firm can provide the necessary guidance and push to help the firm to move forward. They offer their knowledge and expertise to help you navigate the difficulties in the business.
Stage of funding
The venture capital funding stage is broadly classified into two parts:-
- Early-Stage Financing- It includes the angel round of funding, the seed round of funding, and the series A round of funding. It is usually done to help set up the business and streamline the processes. After a proof of concept, you can expect to get early-stage financing from a venture capital fund.
- Expansion Financing- This financing stage is for companies running well, and the business can expand with funding. This is in the later stages of the company and is usually to expand the business or prepare for an exit.
Advantages of venture capital
The advantages of venture capital funding transcend beyond the money raised. The venture capital fund’s knowledge, expertise, and resources are much more useful. When a venture capital fund invests in a business, its financial interests are tied to each other, and the venture capital fund will bring in its experts to help the company succeed.
A venture capital fund will connect the business to similar or complementary businesses. They will ensure that the business gets the necessary technical expertise, financial expertise, and other valuable insights to succeed in its business. In short, the business’s success financially benefits all involved parties.
Examples of venture capital
There are many examples of venture capital funding in the Indian markets. VC funds like Tiger Global, KKR, Accel Partners, Temasek, Lightrock India invest in Indian start-ups. Every year, many start-ups get funding from venture capital funds.
A unicorn is a start-up with a $1 Billion or more valuation. Recently, Shiprocket became the 20th firm this year and 106th overall to turn a unicorn. The company is a logistics start-up, and it received $32 million from Temasek, Lightrock India and others. The valuation of the firm has become $1.3 billion. Other unicorns this year include MamaEarth, Fractal, Leadbox, Dealshare, etc.
Venture Capital firms have invested in many Indian start-ups like Zomato, Swiggy, Oyo, Physics Wallah, Byju’s, etc. The venture capital funds provide the firms with the expertise to expand the business, and the venture capital firms aim to get the firms ready for IPOs to exit at a profit.