“Venture capital combines the qualities of a banker, stock market investor and entrepreneur in one.”
The main features of venture capital can be summarised as follows:
High Degrees of Risk Venture capital represents financial investment in a highly risky project with the objective of earning a high rate of return.
Equity Participation Venture capital financing. is, invariably, an actual or potential equity participation wherein the objective of venture capitalist is to make capital gain by selling the shares once the firm becomes profitable. .
Long Term Investment Venture capital financing is a long term investment. It generally takes a long period to encash the investment in securities made by the venture capitalists.
Participation in Management In addition to providing capital, venture capital funds take an active interest in the management of the assisted firms. Thus, the approach of venture capital firms is different from that of a traditional lender or banker. 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, “venture capital combines the qualities of banker, stock market investor and entrepreneur in one”.
Achieve Social Objectives It is different from the development capital provided by several central and state level government bodies in that the profit objective is the motive behind the financing. But venture capital projects generate employment, and balanced regional growth indirectly due to setting up of successful new business.
Investment is liquid A venture capital is not subject to repayment on demand as with an overdraft or following a loan repayment schedule. The investment is realised only when the company is sold or achieves a stock market listing. It is lost when the company goes into liquidation.