Venture capital is money provided by professionals who invest alongside management in young, rapidly

growing companies that have the potential to develop into significant economic contributors. Venture
capital is an important source of equity for start-up companies. Professionally managed venture capital
firms generally are private partnerships or closely-held corporations funded by private and public
pension funds, endowment funds, foundations, corporations, wealthy individuals, foreign investors, and
the venture capitalists themselves.

Venture capitalists generally: • Finance new and rapidly growing companies • Purchase equity securities
• Assist in the development of new products or services • Add value to the company through active
participation • Take higher risks with the expectation of higher rewards • Have a long-term orientation

Venture funds in India can be classified on the basis of the type of promoters. • VCFs promoted by the
Central govt. controlled development financial institutions such as TDICI, by ICICI, Risk capital and
Technology Finance Corporation Limited (RCTFC) by the Industrial Finance Corporation of India (IFCI)
and Risk Capital Fund by IDBI. • VCFs promoted by the state government-controlled development
finance institutions such as Andhra Pradesh Venture Capital Limited (APVCL) by Andhra Pradesh State
Finance Corporation (APSFC) and Gujarat Venture Finance Company Limited (GVCFL) by Gujarat
Industrial Investment Corporation (GIIC). • VCFs promoted by Public Sector banks such as Canfina by
Canara Bank and SBI-Cap by State Bank of India. • VCFs promoted by the foreign banks or private sector
companies and financial institutions such as Indus Venture Fund, Credit Capital Venture Fund and
Grindlay's India Development Fund.

Importance of Venture capital financing (development

of economy)
1. Promotes Entrepreneurs: Just as a scientist brings out his laboratory
findings to reality and makes it commercially successful, similarly, an
entrepreneur converts his technical know-how to a commercially viable
project with the assistance of venture capital institutions.
2. 5. Promotes exports: The Venture capital institution encourages export
oriented units because of which there is more foreign exchange earnings
of the country.
3. 6. As Catalyst: A venture capital institution acts as more as a catalyst in
improving the financial and managerial talents of the borrowing
concern. The borrowing concerns will be more keen to become self
dependent and will take necessary measures to repay the loan.

8. Brings financial viability: Through their assistance, the venture capital

institutions not only improve the borrowing concern but create a situation
whereby they can raise their own capital through the capital market. In the
process they strengthen the capital market also. 10. Helps sick companies:
Many sick companies are able to turn around after getting proper nursing
from the venture capital institutions.
12. Helps growth of economy: By promoting new entrepreneurs and by reviving
sick units, a fillip is given to the economic growth. There will be increase in the
production of consumer goods which improves the standard of living of the
people.

Position of venture capital in india

In India the Venture Capital plays a vital role in the development and growth of
innovative entrepreneurships. Venture Capital activity in the past was possibly done
by the developmental financial institutions like IDBI, ICICI and State Financial
Corporations. These institutions promoted entities in the private sector with debt as
an instrument of funding. For a long time funds raised from public were used as a
source of Venture Capital. This source however depended a lot on the market
vagaries. And with the minimum paid up capital requirements being raised for
listing at the stock exchanges, it became difficult for smaller firms with viable
projects to raise funds from public. In India, the need for Venture Capital was
recognised in the 7th five year plan and long term fiscal policy of GOI. In 1973 a
committee on Development of small and medium enterprises highlighted the need
to faster VC as a source of funding new entrepreneurs and technology. VC financing
really started in India in 1988 with the formation of Technology Development and
Information Company of India Ltd. (TDICI) - promoted by ICICI and UTI. The first
private VC fund was sponsored by Credit Capital Finance Corporation (CFC) and
promoted by Bank of India, Asian Development Bank and the Commonwealth
Development Corporation viz. Credit Capital Venture Fund. At the same time
Gujarat Venture Finance Ltd. and APIDC Venture Capital Ltd. were started by state
level financial institutions. Sources of these funds were the financial institutions,
foreign institutional investors or pension funds and high net-worth individuals.