q } the decision by Spain's F Columbus can be considered one ot ig the Spanish). However, modem went money raised for the sole purpose o new, rapidly growing or distressed p ‘erdinand and Isabella to finance the voy story's most profitable venture capital investments (2884 1° ure capital—defined as a professionally managed Por! © f making actively managed direet equity investments 18 * ivate companies—is a modem financial innovation AVC has Five Main Characteristics: 1. A VC isa financial inscmiedi ing that it i ; wermediary, meaning that it tak * capital and i a pevthillo sonata ary g that it takes the investors’ capital and i 2. A VC invests only in private companies. This means that once the investments are male, the companies cannot be immediately traded on a public exchange. 3. A VC takes an active role in monitoring and helping the companies in its portfolio. 4. A VC's primary goal is to maximize its financial retumn by exiting investments through a sale or an initial public offering (IPO), : 5. AVC usually makes equi'y investment to fund the internal growth of companies. vests it directly Characteristic (1) defines VCs as financial intermediaries. This is similar to a bank, because just as a bank takes money from depositors and then loans it to businesses and individuals, a VC fund takes money from its investors and makes equity investments in portfolio companies. Typically, a VC fund is organized as a limited partnership, with the venture capitalist acting as the general partner (GP) of the fund and the investors acting as the limited partners (LP). But the most central characteristics of a VC is number 3, That is, the VC takes an active role in the managing of the company, bringing its wealth of experience and expertise in the day to day management of the company. Types of Venture Capital funding “The various types of venture capital are classified as per their applications at various stages of a ‘business. The three principal types of venture capital are early stage financing, expansion financing and acquisition/buyout financing. “The venture capital funding procedure gets complete in six stages of financing corresponding to the periods of a company’s development + Seed money: Low level financing for proving and fructifying a new idea + Start-up: New firms needing funds for expenses related with marketingand product development + First-Round: Manufacturing and early sales funding + Second-Round: Operational capital given for early stage companies which are selling products, but not returning a profit + Third-Round: Also known as Mezzanine financing, this is the money for expanding a newly beneficial company + Fourth-Round: Also calledbridge financing, 4th round is proposed for financing the "going public" processA) Early Stage Financing: Barly sit i rae : Easy ee financing has three sub divisions seed financing, start up financing and first Seed financing is defined as a small amount that an entrepreneur receives for the purp?' being eligible for a start up loan. Start up financing is given to companies for the purpose of finishing the development of products and services. + First Stage financing: Companies that have spent all their starting capital and need finance for beginning business activities at the full-scale are the major beneficiaries of the First Stage Financing. B) Expansion Financing: Expansion financing may be categorized into second-stage financing, bridge financing and third stage financing or mezzanine financing. Second-stage financing is provided to companies for the purpose of beginning their expansion. [tis ‘also known as mezzanine financing. It is provided for the purpose of assisting a particular company to expand in a major way. Bridge financing may be provided as a short term interest only finance option as well as a form of monetary assistance to companies that employ the Initial Public Offers as a major business strategy. ©) Acquisition or Buyout Financing: ‘Acquisition or buyout financing is categorized into acquisition finance and management or leveraged buyout financing. Acquisition financing assists a company to acquire certain parts or an ‘entire company. Management or leveraged buyout financing helps a particular management group to obtain a particular product of another company. Advantages of Venture Capital Financing They bring wealth and expertise to the company Large sum of equity finance can be provided The business does not stand the obligation to repay the money In addition to capital, it provides valuable information, resources, technical assistance 12 make a business successful Disadvantages of Venture Capital Financing {As the investors become part owners, the autonomy and control ofthe founder is Ios Itis a lengthy and complex process Tt is an uncertain form of financing Benefit from such financing can be realized in long run onlyExit route to cash out their investment: are various exit options for Venture Capital ‘There Mergers Gale to other strategic investor