BUSINESS MANAGEMENT & STARTUPS

I Semester - NEP

Module No. 3: Startups & Its Financial Issues ( 10 Hrs )

Introduction- Meaning – Features – Types of Startups – Ideation – Design Thinking, Entrepreneurship
Lessons for Startups, 3 Pillars to Initiate startup (Handholding, Funding & Incubation). Startup
Financial issues: feasibility Analysis- The cost & Process of Raising capital – Unique Funding issues
of a High tech ventures – funding with equity – Financing with debt – funding strategies with
bootstrapping – Crowdfunding – Venture Capital.

Introduction
The term startup refers to a company in the first stages of operations. Startups are founded by one
or more entrepreneurs who want to develop a product or service for which they believe there is
demand.
These companies generally start with high costs and limited revenue, which is why they look for
capital from a variety of sources. Startups are rooted in innovation, addressing the deficiencies of
existing products or creating entirely new categories of goods and services

Meaning
A startup is a young company established by one or more entrepreneurs to create unique and
irreplaceable products or services. It aims at bringing innovation and building ideas quickly.
A startup company is a newly formed business with particular momentum behind it based on
perceived demand for its product or service. The intention of a startup is to grow rapidly as a result
of offering something that addresses a particular market gap.

Definition
Eric Ries defines startup as “a human institution designed to deliver a new product or service under
conditions of extreme uncertainty”.

Definition of Startup (only for the purpose of Government schemes)

An entity shall be considered as a Startup:
1. If it is incorporated as a private limited company or registered as a partnership firm or a
limited liability partnership in India
2. Up to ten years from the date of its incorporation/registration
3. If its turnover for any of the financial years since incorporation/registration has not exceeded
INR 100 Crores
4. If it is working towards innovation, development or improvement of products or processes
or services.

Features of startups
1. Innovation: A startup needs to have a differentiator competition technique in order to gain
competitive advantage in the market.

2. Age: A startup is new company which is still in early stages brand management, sales and
hiring employees.

3. Growth: A startup is a company whose goal is grow and expand rapidly by taking necessary
 risks.

4. Risk: There are several associated uncertainties about ensuring the success of the business.
For this reason, these Business are considered risky investments with high failure rate.

5. Flexibility: A startup should be dynamic and ready to adapt to the adversities that may arise.

6. Fill a void in the market: This Type of company focuses on solving any existing problem
with a product or service in the market.

7. Scalability: A startup is company in constant search of a business model that is scalable and
repeatable, that is, it can grow without the need to increase human or financial resources.

8. Work team: These Business they are usually made up of very few people.

Types of startups
1. Scalable startups. Companies in a tech niche often belong to this group. Since technology
companies often have great potential, they can easily access the global market. Tech
businesses can receive financial support from investors and grow into international
companies. Examples of such startups include Google, Uber, Facebook, and Twitter. These
startups hire the best workers and search for investors to boost the development of their
ideas and scale.

2. Small business startups. These businesses are created by regular people and are self-funded.
They grow at their own pace and usually have a good site but don’t have an app. Grocery
stores, hairdressers, bakers, and travel agents are the perfect examples.

3. Lifestyle startups. People who have hobbies and are eager to work on their passion can
create a lifestyle startup. They can make a living by doing what they love. Examples of
these are freelancers or web designers who have passion for their work.

4. Buyable startups. In the technology and software industry, some people design a startup
from scratch to sell it to a bigger company later. Giants like Amazon and Uber buy small
startups to develop them over time and receive benefits.

5. Big business startups. Large companies have a finite lifespan since customers’ preferences,
technologies, and competitors change over time. That’s why businesses should be ready to
adapt to new conditions. As a result, they design innovative products that can satisfy the
needs of modern customers.

6. Social startups. These startups exist despite the general belief that the main aim of all
startups is to earn money. There are still companies designed to do good for other people,
and they are called social startups. Examples include charities and non-profit organizations .

Ideation
Ideation refers to the process of developing and conveying prescriptive ideas to others, typically in
a business setting. It describes the sequence of thoughts, from the original concept to
implementation. Ideations can spring forth from past or present knowledge, external influences,
opinions, convictions, or principles. Ideation can be expressed in graphical, written, or verbal terms.
Features of ideation
 Ideation is the process of forming ideas from conception to implementation, most often in a
business setting.
 Ideation is expressed via graphical, written, or verbal methods, and arises from past or
present knowledge, influences, opinions, experiences, and personal convictions.
 Ideation is usually derived from brainstorming sessions, online forums, seminars, surveys,
social media platforms, and team-building exercises.
 Anyone from an organization, from the CEO to an intern, can partake in the ideation process
and contribute innovatively to a company.
 Most of the ideation process originates from trying to fix a problem; ideation is commonly
reverse engineered.
 Styles of ideation include problem solutions, derivative ideas, and symbiotic ideas.

Components of ideation
1. Brainstorm
2. Evaluate
3. Research
4. Discuss

Popular Ideation Techniques 

1. Brainstorming: In brainstorming, the goal is to leverage the power of the group to build on
each other’s ideas.

2. Method 6-3-5: Method 6-3-5 is a form of brainstorming in which six people write down
three ideas in five minutes. 

3. Prototyping: Prototyping can help employees visualize how their product will work, as well
as enable the team to gather feedback from internal and external stakeholders sooner in the
development process.

4. Five Whys Analysis: The goal of the exercise is to get to the root cause of the problem—and
that might take asking one “why”

5. Storyboard: Through storyboarding, companies can develop a visual story related to their
problem or solution. The activity allows teams to illustrate their prospective customers and
give possible solutions.

Design thinking

Stage 1: Empathize—Research Your Users' Needs

At this stage in the design thinking methodology, designers sit down with real people and absorb
their points of view, world, and introspections without bias.
When designing a product or service, empathy in design thinking builds a crucial and necessary
bridge between the target user or audience and the product, project, or service being designed.

Some steps that are often taken during this stage of the design thinking methodology are:

 Consulting subject matter experts about their insights

 Engaging more personally with an issue to gain a better understanding of a user’s POV
  Having in-depth conversations about the topic with other designers
 Immersing oneself in a physical environment

Stage 2: Define—State Your Users' Needs and Problems

This stage of the process involves designers succinctly articulating the challenge or problem they
need to solve with their design. After empathizing, a designer integrates their researched
understanding into the human-centric issue at hand and outlines the problem statement.

In this stage, designers will analyze their observations completed throughout the empathy stage, and
work on synthesizing that information. Instead of focusing on what the company might need to do,
the definition stage of the design thinking process should help state what the user needs as a way of
defining the problem.

Stage 3: Ideate—Challenge Assumptions and Create Ideas

The ideation stage leans heavily on the ability to invent. Designers who have captured the human
experience fully during the empathy stage set out to ideate around creative solutions for solving the
defined problem. Thinking outside the box is the name of the game, as, during this stage, designers
often don’t worry about budget or scalability.

At this point, designers should have a workable understanding of their user base, so this is an
excellent time to get creative and not dwell too much on limitations.

Stage 4: Prototype—Start to Create Solutions

Prototyping will usually involve the creation of small-scale, inexpensive versions of the product.
These can include specific features in order to target individual problem-solution scenarios, and set
the stage for decision-making conversations around what works and what doesn’t.

In the prototype stage, the goal is to fully understand all roadblocks around making the product
come to life completely. Ideally, prototyping should also uncover additional user experience
problems and set up designers with a clearer view of user behaviors, reactions, and expectations.

Stage 5: Test—Try Your Solutions Out

Designers or evaluators rigorously test the complete product using the best solutions identified
during the prototyping phase. This is the final stage of the 5 stage-model, but in an iterative process,
the results generated during the testing phase are often used to redefine one or more problems and
inform the understanding of the users, the conditions of use, how people think, behave, and feel,
and to empathise. Even during this phase, alterations and refinements are made in order to rule out
problem solutions and derive as deep an understanding of the product and its users as possible.

Entrepreneurship lessons for startups

1. Choose an attractive name for the business.
2. Understand the hurdles in raising finance
3. Develop a strong product or service
4. Enter in the market in the right time
5. Hire the right team
6. Build a good selling platform
7. Pitch your business effectively
8. Prepare an attractive summary of the business
9. Focus on financial statements and budgets
10. Timely information to investors
 11. Adopt effective marketing strageies
12. Update on Government regulations

Three pillars to initiate startups in India

Startup India is a flagship initiative of the Government of India, intended to build a strong eco-
system for nurturing innovation and Startups in the country that will drive sustainable economic
growth and generate large scale employment opportunities. The Government through this initiative
aims to empower Startups to grow through innovation and design.

The action plan of this initiative is focussing on three areas:

1. Simplification and Handholding.
2. Funding Support and Incentives.
3. Industry-Academia Partnership and Incubation.

Simplification and Handholding

1. Compliance Regime based on Self-Certification - Startups shall be allowed to self-certify
compliance (through the Startup mobile app) with 9 labour and environment laws. In case of
the labour laws, no inspections will be conducted for a period of 3 years. Startups may be
inspected on receipt of credible and verifiable complaint of violation, filed in writing and
approved by at least one level senior to the inspecting officer. In case of environment laws,
Startups which fall under the ‘white category’ (as defined by the Central Pollution Control
Board (CPCB)) would be able to self-certify compliance and only random checks would be
carried out in such cases.
2. Startup India Hub - To create a single point of contact for the entire Startup ecosystem and
enable knowledge exchange and access to funding.
3. Rolling-out of Mobile App and Portal - To serve as the single platform for Startups for
interacting with Government and Regulatory Institutions for all business needs and
information exchange among various stakeholders
4. Legal Support and Fast-tracking Patent Examination at Lower Costs - Under this scheme,
the Central Government shall bear the entire fees of the facilitators for any number of
patents, trademarks or designs that a Startup may file, and the Startups shall bear the cost of
only the statutory fees payable. Rebate on filing of application: Startups shall be provided an
80% rebate in filing of patents vis-a-vis other companies. The scheme is being launched
initially on a pilot basis for 1 year; based on the experience gained, further steps shall be
taken.
5. Relaxed Norms of Public Procurement for Startups - In order to promote Startups,
Government shall exempt Startups (in the manufacturing sector) from the criteria of “prior
experience/ turnover” without any relaxation in quality standards or technical parameters.
The Startups will also have to demonstrate requisite capability to execute the project as per
the requirements and should have their own manufacturing facility in India.
6. Faster Exit for Startups - Startups may be wound up within a period of 90 days from making
of an application for winding up on a fast track basis, as per the recently tabled Insolvency
and Bankruptcy Bill 2015, which has provisions for voluntary closure of businesses. This
process will respect the concept of limited liability.

Funding Support and Incentives

1. Providing Funding Support through a Fund of Funds with a Corpus of INR 10,000 crore - In
order to provide funding support to Startups, Government will set up a fund with an initial
corpus of INR 2,500 crore and a total corpus of INR 10,000 crore over a period 4 years (i.e.
 INR 2,500 crore per year) . The Fund will be in the nature of Fund of Funds, which means
that it will not invest directly into Startups, but shall participate in the capital of SEBI
registered Venture Funds.
2. Credit Guarantee Fund for Startups - Credit guarantee mechanism through National Credit
Guarantee Trust Company (NCGTC)/ SIDBI is being envisaged with a budgetary Corpus of
INR 500 crore per year for the next four years.
3. Tax Exemption on Capital Gains - With this objective, exemption shall be given to persons
who have capital gains during the year, if they have invested such capital gains in the Fund
of Funds recognized by the Government. In addition, existing capital gain tax exemption for
investment in newly formed manufacturing MSMEs by individuals shall be extended to all
Startups.
4. Tax Exemption to Startups for 3 years - The profits of Startup initiatives are exempted from
income-tax for a period of 3 years. The exemption shall be available subject to non-
distribution of dividend by the Startup.
5. Tax Exemption on Investments above Fair Market Value - Under The Income Tax Act,
1961, where a Startup (company) receives any consideration for issue of shares which
exceeds the Fair Market Value (FMV) of such shares, such excess consideration is taxable
in the hands of recipient as Income from Other Sources. Investment by venture capital funds
in Startups is exempted from operations of this provision. The same shall be extended to
investment made by incubators in the Startups.

Industry-Academia Partnership and Incubation

1. Organizing Startup Fests for Showcasing Innovation and Providing a Collaboration Platform
- To bolster the Startup ecosystem in India, the Government is proposing to introduce
Startup fests at national and international stages.
2. Launch of Atal Innovation Mission (AIM) with Self-Employment and Talent Utilization
(SETU) Program - The Atal Innovation Mission will establish sector specific incubators and
500 'Tinkering Labs' to promote entrepreneurship, provide pre-incubation training and a
seed fund for high-growth startups. Three innovation awards will be given per state and
union territory, along with three national awards, as well as a Grand Innovation Challenge
Award for finding ultra-low cost solutions for India.
3. Harnessing Private Sector Expertise for Incubator Setup - To ensure professional
management of Government sponsored / funded incubators, Government will create a policy
and framework for setting-up of incubators across the country in public private partnership.
4. Building Innovation Centres at National Institutes - In order to augment the incubation and
R&D efforts in the country, the Government will set up/ scale up 31 centres (to provide
facilities for over 1,200 new Startups) of innovation and entrepreneurship at national
institutes
5. Setting up of 7 New Research Parks Modeled on the Research Park Setup at IIT Madras -
The Government shall set up 7 new Research Parks in institutes with an initial investment of
INR 100 crore each. The Research Parks shall be modeled based on the Research Park setup
at IIT Madras.
6. Promoting Startups in the Biotechnology Sector - 5 new Bio-clusters, 50 new Bio-
Incubators, 150 technology transfer offices and 20 Bio-Connect offices will be set up in
research institutes and universities across India. BIRAC AcE Fund in partnership with
National and Global Equity Funds (Bharat Fund, India Aspiration Fund amongst others) will
provide financial assistance to young Biotech Startups.
7. Launching of Innovation Focused Programs for Students - An innovation core program
targeted at school kids aims to source 10 lakh innovations from five lakh schools, out of
which the the best 100 would be shortlisted and showcased at an Annual Festival of
 Innovations, to be held in Rashtrapati Bhavan. A Grand Challenge program called NIDHI
(National Initiative for Developing and Harnessing Innovations) shall be instituted through
Innovation and Entrepreneurship Development Centres (IEDCs) to support and award INR
10 lakhs to 20 student innovations. Uchhattar Avishkar Yojana, a joint MHRD-DST scheme
has earmarked Rs. 250 crore annually to foster "very high quality" research amongst IIT
students.
8. Annual Incubator Grand Challenge - The government will identify and select ten incubators,
evaluated on pre-defined Key Performance Indicators (KPIs) as having the potential to
become world class, and give them Rs.10 crore each as financial assistance to ramp up their
infrastructure.

Issues & challenges of startups

1. Lack of financial resources
2. Difficulty in revenue generation
3. Retention of team members
4. No supporting Infrastructure
5. Tough to create awareness in market
6. Need to exceed customer expectations
7. Tests tenacity of founders
8. Several regulations to abide
9. Lack of mentorship
10. Lack of good branding strategy

Feasibility analysis
Feasibility analysis is the process of determining if a business idea is viable. It is the preliminary
evaluation of a business idea, conducted for the purpose of determining whether the idea is worth
pursuing.

Four forms of feasibility analysis

1. Product/Service Feasibility
2. Industry/Market Feasibility
3. Organizational Feasibility
4. Financial Feasibility

1. Product/Service Feasibility: Is an assessment of the overall appeal of the product or service

being proposed. The idea is that before a prospective firm rushes a product or service into
development, it should be confident that the product or service is what its prospective
customers want.
The two components of a product/service feasibility analysis are:
i. Concept testing: A concept test entails showing a representation of the product or
service to prospective users to gauge customer interest, desirability, and purchase
intent.
ii. Usability testing: Involves creating a prototype of the product

2. Industry/Market Feasibility: Is an assessment of the overall appeal of the market for the
product or service being proposed. For industry/market feasibility analysis, there are three
primary issues that a proposed business should consider:
i. industry attractiveness
ii. market timeliness
iii. identification of a niche market.
 3. Organizational Feasibility
a. Availability of affordable office or lab space.
b. Likelihood of local and state government support of the business.
c. Quality of the labor pool available.
d. Proximity to key suppliers and customers.
e. Willingness of high-quality employees to join the firm.
f. Likelihood of establishing favorable strategic partnerships.
g. Proximity to similar firms for the purpose of sharing knowledge.
h. Possibility of obtaining intellectual property protection in key areas.

4. Financial Feasibility: For feasibility analysis, a quick financial assessment is usually sufficient.
The most important issues to consider at this stage are:
i. Total start‐up cash needed.
ii. Financial performance of similar businesses.
iii. Overall attractiveness of the proposed venture.

Contents of a feasibility report

1. Title page or Front Matter
2. Report or the Body
3. Sections of the report
4. Back Matter or conclusion

Steps involved in conducting feasibility study

1. Conduct preliminary analysis
2. Preparing a projected income statement
3. Conduct market survey
4. Plan business operations
5. Prepare Balance Sheet
6. Review and analyse data

BOOTSTRAPPING
Bootstrapping is the process of building a business from scratch without attracting investment or
with minimal external capital. It is a way to finance small businesses by purchasing and using
resources at the owner’s expense, without sharing equity or borrowing huge sums of money from
banks.

In other words, bootstrapping is characterized by limited sources of financing.

For the successful growth of an enterprise, a competent development strategy is necessary, in which
all possible risks will be accounted for. In addition, available funds need to be allocated to the most
vital segments of the business model.

Bootstrapping is founding and running a company using only personal finances or operating
revenue.
This form of financing allows the entrepreneur to maintain more control, but it also can increase
financial strain.

Stages of Bootstrapping
There are a few stages that a bootstrapped company goes through:
1. Beginner stage
The beginner stage starts with some saved money or borrowed/invested money coming from
friends. For example, the founder continues to work on their main job and, at the same time, starts a
business.

2. Customer-funded stage
When money from customers/clients is used to keep the business operating and to fund its growth.

3. Credit stage
The credit stage involves the entrepreneur focusing on funding specific activities, such as hiring
staff, upgrading equipment, etc. At the credit stage, the business takes out loans or tries to find
venture capital for expansion.

Advantages of Bootstrapping
1. The “bootstrapper” reserves the right to all developments, as well as ideas that were used
during the development of the business.
2. The lack of initial funding makes entrepreneurs look for unusual ways to solve problems,
create new offers on the market, and show creative thinking.
3. Independence from investor opinions.
4. Attracting external funding is challenging and can be a very stressful and time-consuming
task
5. Creating the financial foundations of business by an entrepreneur is a huge attraction for
future investments.
6. Providing value to people. Business is all about delivering a particular value through a
product or service.

Disadvantages of Bootstrapping
1. Business growth can be difficult if demand exceeds the company’s ability to offer or
produce services or products.
2. The entrepreneur takes on almost all financial risks instead of sharing them with investors
who invest in supporting the company’s growth.
3. Limited capital and lack of investment: In the context of the specifics of bootstrapping, the
attraction of large investments and fully implementing one’s ideas can be extremely hard.
4. Stress problems: The ability to handle stressful situations is regularly checked when
unexpected problems arise.

CROWDFUNDING
Crowdfunding is a method of raising capital through the collective efforts of a large number of
individual investors.
Crowdfunding is done primarily online via social media and websites.
Crowdfunding is the practice of funding a project or venture by raising small amounts of money
from many people, basically via the Internet or such dedicated websites.

Types of Crowdfunding
1. Equity-based crowdfunding
2. Donation-based crowdfunding
3. Rewards-based crowdfunding
4. Debt-based crowdfunding
5. Royalty-based crowdfunding
 1. Equity-Based Crowdfunding:- Equity crowdfunding allows contributors to become part-
owners of the company by trading capital for equity shares. The equity owners receive a
financial return (share of the profits in the form of a dividend or distribution.) in the
proportion of their contribution. This is the most popular form of crowdfunding.

2. Reward-Based crowdfunding: Reward-based crowdfunding, involves individuals

contributing to a business in exchange for a reward typically a form of the product or service
which the company offers.
In this type of funding distance between the creator and investor does not matter. Many
characteristics of rewards-based crowdfunding known as non-equity crowdfunding. This
type of funding is used in many cases like; funding for free software development, motion
picture promotion, scientific research, civic projects, and new inventions etc.

3. Donation-based crowdfunding: It is a way to source money for a project by asking a large

number of contributors to individually donate a small amount without any expectation of
return.
This type of funding is done mainly for social causes and nothing is expected in return for
such funding. Common initiatives for such funding include; natural calamities, disaster
relief, charities and medical bills.

4. Debt-based crowdfunding: Debt-based crowdfunding is the practice of raising funds from

individuals, in return for interest. The person who supports your project by putting his
money is known as an investor. In other words, debt-based crowdfunding is also called as
"crowdlending."
The method of crowdfunding in which the project owners finance their projects in the form
of a loan from several lenders. The debt amount is subject to a prespecified fixed interest
rate. It is suitable for companies which would rather pay-back the capital than hand out
equity of the company.

5. Royalty based crowdfunding: Royalty based crowdfunding offers the backers of an idea or
donors a percentage of revenue accrued when the company becomes successful or starts
making profits. The main difference between royalty-based crowdfunding and equity-based
crowdfunding is that here the backers or donors receive the royalty obtained from sale of the
products or idea which they have invested in.
They gain as long as the idea is successful and running, whereas in equity crowdfunding the
donors own a percentage of the company and invest in the company as a whole.

Benefits of crowdfunding
1. Entrepreneurs have the freedom to innovate naturally in a domain of their choice.
2. Crowdfunding can be done successfully if the promoters have a good social media presence
and a well large network of friends.
3. No requirement to give up any equity.
4. No requirement to have a repayment plan and/or interest payments.
5. Ability to attract a wide range of investors.
6. Also, serves as a marketing channel.
7. No minimum fundraise requirement.
8. Progress of a funding campaign can be easily tracked.

Crowdfunding platforms in India

• Kickstarter - Focus areas: creativity and merchandising
 Purpose/mission: to bring creative projects to life
• Wishberry - Focus area: creative projects
Purpose/mission: to bring innovative ideas to life and build a community of
patrons for creative ideas in India.
• Indiegogo - Focus area: product innovation, bring innovative ideas to life
Purpose/mission: to be a launchpad for entrepreneurial ideas
• FuelADream - Focus area: creative ideas, causes, charities, events, and community-led
activities
Purpose/mission: to change the traditional methods and simplify raising fund.
• Fundable - Focus area: small businesses
Purpose/mission: to help get businesses funded
• Ketto - Focus area: creative, entrepreneurial, NGOs, personal causes, education
Purpose/mission: bring social change, raise awareness, raise funds
• Catapooolt- Focus area: individual projects, startups, enterprises
Purpose/mission: provide an ecosystem for crowdfunding
• Milaap – Focus area: low-income borrowers, small funds for social causes and
enterprises
Purpose/mission: to offer micro-loans to rural India.

VENTURE CAPITALISTS
 Venture capital, also called VC, refers to the financing of a startup company by typically
high-wealth investors who think the business has potential to grow substantially in the long
run.
 A venture capitalist (VC) is an investor that provides young companies with capital in
exchange for equity.
New companies often turn to VCs for the funding to scale and commercialize their products.
 Typically, VCs only invest in startup companies up to a certain percentage.
 Due to the uncertainties of investing in unproven companies, venture capitalists tend to
experience high rates of failure. However, for those investments that do pan out, the rewards
are substantial.

Role and Importance of Venture Capital

In brief, the role and importance of venture capital are as follows:

1. Promotion of the Enterprise

This is the foremost function of an entrepreneur. For it, the entrepreneur carries out various
functions, like – emergence of the business idea, to obtain information about related facts, selection
of the location, preparation of plant layout, registration of the enterprise and completion of various
legal formalities. For all these activities, the role of venture capital is very important.

2. Encouragement to Entrepreneurship
Venture capital is an important tool or method to encourage entrepreneurship, the reason being that
on one side, the venture capital encourages the innovators to establish the industries/ and on the
other side small and medium entrepreneurs and also encouraged.

3. Performance of Economic Activities

Economic activities, like – sale and purchase for products, purchase of means and machinery for
converting raw material into finished products, carrying out production and its availability to the
consumers may be efficiently performed through venture capital.
As a result of all these, the entrepreneur may take high risk and the growth may also be high.
4. Management and Organization
Management and Organisation of the industry should be efficient for the performance of various
economic activities.
For example, manpower planning, taking work from competent persons, to engage the service of
professionals and maintaining balance therein, for getting economic activities accomplished.

For all these, venture capital in the required volume is essential.

5. Dominance of Desired Skills and Competencies

In each area, professionals are appointed. If the entrepreneur has to avail of the services of any
particular person for specific work, then the venture capital has a special role in obtaining his
desired skills.

6. Fulfilment of Financial Requirements of High-Risk Entrepreneurs

Use of automatic machines, computers, the latest machinery, robots, new sources of energy, email,
rocket research, etc. Due to scientific progress have not only brought the technical Revolution but
has also increased the risks. The financial requirement of entrepreneurs involving high risks has
been met by venture capital companies.

7. Representation of Funds Incorporated in New Enterprise

Venture capital represents the funds in the new enterprise. Sometimes, debt funds are also made
available for it.

8. Assistance in Strategy Formulation

Venture capital has to sustain in all types of competition, which enables the entrepreneur to prepare
strategies right from the establishment of the industry to its development expansion.

9. Possibility of Rapid Development Expansion

Venture capital includes all types of high risk and high probable investments.
Hence, venture capital is made available to a new company from the starting stage (promotion of
the enterprise) to advance further. As a result, the possibility of rapid development expansion of the
company increases.

10. Other Roles and Importance

Investment of venture capital for the purchase of modern machinery establishment of laboratories,
the appointment of scientists and training for new functions and activities, etc. Also focuses on
Employees’ welfare and amenities, Project evolution and reports.

Advantages of Venture Capital

 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 to
make a business successful

Disadvantages of Venture Capital

 As the investors become part owners, the autonomy and control of the founder is lost
 It is a lengthy and complex process
 It is an uncertain form of financing
  Benefit from such financing can be realized in long run only

Exit route
There are various exit options for Venture Capital to cash out their investment:
 IPO
 Promoter buyback
 Mergers and Acquisitions
 Sale to other strategic investors.