A country’s ultimate objective is development which lay emphasis on economic development. Business, trade and commerce are the golden key for such development. But people of the country cannot start a business unless they are backed up with adequate capital. Since a country like India the distribution of money is unequal though measures are taken for equal distribution, either the Government or the individual groups with surplus money have to support the middle income people to start business. The key to open this lock is the venture capital funds. This article gives basic information about venture capital, its accessibility and role in economy of a country.
Venture capital or Private equity is medium to long term finance provided in return for a shareholding in unquoted companies. An unquoted company is a company with previously issued securities that are no longer quoted or traded on formal exchanges such as the NYSE. Shares in these companies are available in the over- the – counter market, but they are traded in very low volumes if at all. So the main target of the venture capital is to start a business with that capital. Venture capital is normally given at the creditor’s risk. It can be regarded as the financial capital provided to the early stage, high potential, high risk, growth start up companies. It creates money by owning equity shares in the companies it invests in, which usually aid with a better business model in hi-tech industries such as IT. It can be easily traced that venture capital is attractive for new companies with limited operating history that are too small to raise capital in public markets and have not reached a point where they are able to secure a bank loan or a complete debt offering. In US venture capital is also associated with job creation. Venture capital paved the way for public and private sectors can construct an institution that systematically creates network for the new firms and industries so that they can progress. A company can be highlighted to a venture capitalist by thumb rule. It states that unless a business can offer the prospect of significant turnover growth within three to five years it is unlikely to be of interest to a private equity investor.
It can be thus concluded that market for the particular products and services are not only within the territory but also outside the territory.
HISTORY AS TO VENTURE CAPITAL
The evolution of Venture capital or private equity can be discussed under three main heads.
I. Post World war period: After the World War II many businesses were ruined in the nook and corner of the world. Two main firms came up with venture capital funds- American Research Development Corporation and J.H. Whitney & Co. After this period Silicon Valley grew up.
II. Internet bubble: By the end of 1980s venture capital returns were relatively low. After a shake out of venture capital managers the more successful firms retrenched focusing increasingly on improving operations at their portfolio companies rather than continuously making new investments. It turned to produce attractive results by booming Venture capital funds. Andrew Metric refers the first 15 years of modern venture capital industry beginning in 1980 as pre-boom period and lasting through the bursting of internet bubble in 2000.
Equity crash: During the period ranging from 2000 to 2003, NASDAQ crash and technology slump that started in 2000 shook virtually the entire venture capital industry as valuations for start up technology companies collapsed.
ADVANTAGES OF VENTURE CAPITAL
- Development of nation’s economy
- Opportunity to do business
- Equal distribution of money
- Job opportunity
The globe is competitive day by day and countries should struggle to get top position. Venture capital being provide viable opportunity to start business can be regarded as vital source for industrial as well as economic development.