Venture capital is one of the most important fuel drivers for innovative startups. A venture capital firm provides significant finance to grow, which helps a young entrepreneur realize his dreams.
At the same time, it also benefits an investor by giving him a chance to invest in high-potential ventures where he has a significant return on his investment. Here’s a quick guide to understanding venture capital – the inspiration for this article being industry expert Someshwar Srivastav.
Someshwar Srivastav’s Definition of Venture Capital
The funding provided for young companies with potential to grow is known as venture capital. Investors-from private wealth to financial institutions- invest capital into getting an equity share in those startups. This drives idea would be encouraging businesses that possess large returns, which would be attractive.
As Someshwar Srivastav aptly puts it- “Fundraising is always step-by-step”. This initial stage is called the “seed round” where usually funds in between 5 to 10 lakhs are invested. The Seed Round funds help the startup refine their ideas, make products, and prepare for future growth.
Venture Capital Investment
1. Give a Business Plan: Investors demand a well-crafted plan that outlines the company strategy, market analysis, and financial projections.
2. Pitch to the Board: Investors may request further information or start due diligence upon reviewing the plan. Entrepreneurs should seek face-to-face meetings as well, and respond to investor concerns.
3. Due Diligence: Investors undertake vast research of the business-its financials, market demand as well as competition-to conclude if indeed the business is a great investment.
4. Negotiate Terms: When they are interested, investors will develop a term sheet which expresses terms and conditions of investment.
Conclusion
For both startups and investors, very large opportunities are offered. Complicated, yes, but if one is familiar with the process, as those described by Someshwar Srivastav have shown, they can safely find their way to raise money for a venture.
Even though many of such investments do not have positive returns, the potential payback on such investments makes venture capital very much in demand. If these are invested wisely in high-growth ventures, investors can help realize the potential of otherwise groundbreaking ideas. Additionally, Someshwar Srivastav feels that this will help to contribute positively to broader economic and technological development.
