Some Basic Facts Regarding VC Funding (Part I)

Venture Capitalists have a very bad reputation across the world. They are known as cold heartless people who are very hard to convince. It is true that a large number of ideas and ventures fail to get funding because the entrepreneurs are not able to convince Venture Capitalists that their idea has a higher rate of success in the market.

It is very easy to blame a VC for not funding a project but have we ever thought the reasons for rejections from the VC's angle? Have we ever done some homework on what VC is all about? Even before we plan on approaching a VC with the business proposal we need to do some homework from our side.

We need to understand what venture capital actually is. What does it involve? What are the various stages of funding? And last but not the least the elements considered by the venture capitalists before approving or rejecting funding.

What is Venture Capital?
Venture Capital is the financial assistance provided by experts who are willing to invest in companies which are young and have the potential to grow rapidly into significant economic contributors. As per the SEBI regulations, venture capital fund is defined as a fund that is established in the form of a company or trust that raises money through loans, donations, issuing securities or units, in order to make investments in accordance with these regulations.

Who are Venture Capitalists?
Venture Capitalists are individuals or companies providing Investment Capital, Management Expertise, and various kind of support which includes and is not restricted to networking and marketing.

The focus areas of Venture Capitalists are as follows

* Providing financial support for new and rapidly growing organizations

* Purchasing equity securities

* Creating a framework for a long term plan (generally involving a time frame of around 5 to 6 years or more)

* Active participation in the company's management and strategic planning related to the overall growth and functioning of the project of the company

* Networking and marketing of the product and or services that are being offered by the company.

* Taking high risk to increase profit margins and get higher rewords.

So the work of a venture capitalist does not end with providing the financial support to the organization. In fact it can be said that providing funds is the first of many steps taken by a venture capitalist.

In this segment we have tried to understand what venture capital is and the areas that are covered by venture capitalists while funding an organization. In the next segment of this topic we will be focusing on the various stages of funding.