By Preetam Kaushik, Business Insider India
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The Indian government’s budget for 2014-15 is clearly an investor-friendly one with a slew of provisions and funds earmarked for start-ups in India. Also, a start-up fund worth Rs 10,000 crore is being mulled by the government. According to Finance Minister Arun Jaitley, it will be “equity, quasi-equity, soft loan and other risk capital for start-ups.”
This is encouraging news although angel investors and venture capitalists (VCs) have kept the start-up ecosystem thriving in India till date. Venture capital is an investment in the form of shares or a later stock option in potentially high-risk businesses. The beneficiary companies are usually small or medium-sized firms, requiring seed or early-stage funding for innovation and development of technology or products with high growth potential. High annual returns ranging from 25-75% are expected on such investments.
Venture capital can be injected in different stages of a start-up lifecycle:
- 1. In the initial development stage as ‘seed capital’ for converting an idea into a commercially viable entity.
- 2. Implementation or ‘start-up capital’ when all is ready to commence production.
- 3. Additional capital to overcome manufacturing teething problems.
- 4. Establishment capital to facilitate rapid expansion of an established company.
Venture capital is a long-term investment and involves active participation and help from the investor for the development of the company. Often, the presence of the VC investor/s gives the company commercial and financial clout.