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Lecture Retail and merchant banking – Lecture 16

After studying this chapter you will be able to understand: Venture capital; features of venture capital; modes of VC finance; areas of investment: Strong management team, a viable idea, business plan, project cost and return, future market prospects, existing technology, miscellaneous factors. | Revise Lecture 16 Financial services Venture Capital Financial services Venture capital has been emerged as a new financial method of financing during the 20th century. It is the capital provided by firms of professionals who invest alongside management in young, rapidly growing or changing companies that have the potential for high growth. Financial services It is a form of equity financing especially designed for funding high-risk and high-reward projects. There is a common perception that venture capital is a means of financing high technology projects. The term ‘venture capital’ represents financial investment in a highly risky project with the objective of earning a high rate of return. Features of venture capital Features of venture capital The main features of VC can be summarized as; High degree of risk: VC represents financial investment in a highly risky project with the objective of earnings a high rate of return. Features of venture capital Equity participation: VC . | Revise Lecture 16 Financial services Venture Capital Financial services Venture capital has been emerged as a new financial method of financing during the 20th century. It is the capital provided by firms of professionals who invest alongside management in young, rapidly growing or changing companies that have the potential for high growth. Financial services It is a form of equity financing especially designed for funding high-risk and high-reward projects. There is a common perception that venture capital is a means of financing high technology projects. The term ‘venture capital’ represents financial investment in a highly risky project with the objective of earning a high rate of return. Features of venture capital Features of venture capital The main features of VC can be summarized as; High degree of risk: VC represents financial investment in a highly risky project with the objective of earnings a high rate of return. Features of venture capital Equity participation: VC financing is, invariably, an actual or potential equity participation wherein the objective of the VC is to make capital gain by selling the shares once the firm becomes profitable. Features of venture capital Long-term investment: VC financing is a long-term investment. It generally takes a long period to encash the investment in securities made by venture capitalists. Features of venture capital Participation in management: In addition to providing capital, VC funds take an active interest in the management of the assisted firm. Thus, the approach of VC firms is different from that of a traditional lender or banker. Features of venture capital It is also different from that of a ordinary stock market investor who merely trades in the shares of a company without participating in their management. It has been rightly said, ‘VC combines the qualities of banker, stock market investor and entrepreneur in one’ Features of venture capital Investment is liquid: A VC is not subject to .