ENTREPRENEURSHIP AND VENTURE CAPITAL

Entrepreneurship distinctly adds to the economic prosperity of a nation. Incorporation of an

enterprise results in an addition to aggregate production of the country – an addition to
national income in terms of various forms of factor payments. It creates employment
opportunity for both labour and capital and produces goods and services that the country
requires. A country endowed with numerous entrepreneurs is economically strong and self-
sufficient. Countries like United States of America, UK and Japan are the evidences of this
truth.
An entrepreneur, undertaking a productive venture, must be innovative, customer oriented
and careful about the interest of the all stakeholders, financial and non-financial. The fact is
that many entrepreneurs begin their ventures with great initial investments. However, finally
only selected few become successful. This may be attributed to the lack of knowledge of the
young entrepreneurs regarding the art and science of developing a productive venture. Desai
Vasant (2000), to narrate the challenges of entrepreneurship, provided a list of thirty four
steps, which are required to be complied with to emerge as a successful entrepreneur.
In fact in incorporating an enterprise and making it survive commercially require knowledge
and expertise in many areas, some of which are innate, inbuilt in the capability of the
entrepreneur, while others are required to be hired from expert service providers. Resource
mobilization, recruitment of personnel, technology adaptation and inorganic expansion are
some of the areas, where expert service is essential. Large corporate houses hire these
services from established merchant bankers and consultancy houses. Young enterprises
starting a venture at early stage cannot afford the cost to obtain such services from market or
mostly they lack the idea that such services might be really essential in staying in business.

In case of young entrepreneurs, the most upcoming challenge is finance. As they cannot
provide security or collateral required for getting their loans approved, Commercial Banks do
not lend to them. One recent development is launching a special segment of capital market
for small and medium enterprises, which imparts liquidity to the stocks of small and medium
enterprises. It gives small and medium enterprises an opportunity to float equities and raise
capital from market. However, market is not generous that investors will invest in the shares
of small and medium enterprises without investing the money in blue chips and established
growth firms. Secondly, to make an IPO successful an entrepreneur has to convince dozens of
underwriters, hundreds of brokers and thousands of investors, which is an uphill task.

In the context narrated above, Venture Capital can be looked upon as a remedy. The Venture
Capital companies bring capital as well as expertise. Venture Capital is non-conventional
risky capital used to finance new ventures that want to start an innovative, high technology
and radically new line of business. It requires that the entrepreneurs should conceive a highly
innovative business idea, hitherto not commercialized in a large scale. Very recently venture
funds have expanded their investments to businesses of conventional lines too.

There are numerous venture funds, both in private sector and public sector. Some of the
examples of venture fund can cited as ICICI Ventures, UTI Ventures, CanFina VCF,
JumpStartUp, West Bridge Capital, Warbug Pincus, Chrys Capital, etc. It will not out of
place to state that some of the big corporate houses of today were initially financed by
venture capital. Names of some venture financed companies along with the names of
supporting venture funds have been enlisted below:

Table 1: Entrepreneurial Success and Venture Fund

Undertaking successful Venture Fund proving capital

Bharti Televentures, Airtel Warbug Pincus

Dr Reddy’s Lab ICICI Ventures

Moser Baer India Limited IFC

Centurion Bank Sabre Capital

Apollo Hospitals IFC

This will not be out of place to state that even when finances can be arranged from
commercial banks, many entrepreneurs prefer venture financing because of the numerous
benefits attached with venture capital. Ogden J P, Jen Frank C and O’Connor Philip F (2003)
prepared the following list of benefits.
a) Venture Capital firms provide fund in the form of equity or quasi equity, hybrid security
b) Venture Capital firms assists in developing strategies, tactics
c) Venture Capital firms provide access to industry chain and contacts
d) Venture Capital firms provides advice on how to manage the firm
e) Venture Capital firms act as issue manager if the young firms need fund
f) Venture Capital firms arrange buyout or harvesting, if needed

Venture funds appoint a member on the board of the venture undertaking getting financial
support. One major advantage of venture capital is that the young entrepreneur gets expert
board members from venture fund on his Board of Directors, who can contribute experience
with expert help and guide the firm in developing its marketing and business strategies. A
venture fund also connects the business of a young entrepreneur with the business chain and
contacts of the venture fund.
History of Venture Capital is very old in western countries like USA; it is comparatively new
in India. In the form of seed capital concept, some financial institutions particularly the
development banks used to run a window for providing capital to young enterprises.
Eventually ICICI sponsored Technology Development and Information Company of India
Ltd, incorporated in 1988, emerged as the first government sponsored venture fund in India.
With the incorporation of the Over the Counter Exchange of India, venture capital registered
a steady growth.

Some IT Professionals and MBAs have tapped venture fund to begin their successful
enterprises. However, knowledge about the venture fund has yet not become popular in rural
areas. This is highly recommended that the concept should be popularized among young
entrepreneurs so that they can tap this source to make their business stand. Indeed, it is
highly useful, because funds come with expertise. As Khan and Jain (2012) noted that some
venture funds maintain hands on approach in nurturing investment during their association
with investee undertaking as active partners rather than as passive investors. Venture funds
ensure that assistance provided to the entrepreneur is properly utilized and projects financed
go in tandem with proposal submitted.

Now there are hundreds of venture funds; these funds are known in different words such as
angel investors, private equity, venture capital and risk capital. Foreign Venture Funds have
also started entering India and start investing in the form of FDI. Association of Venture
Capital (IVCA) has been formed. Home-page of the association invites business proposals for
providing capital to the young entrepreneurs. However, venture funds expect that the
entrepreneurs should be honest, innovative and committed. While an undertaking really
shines, it makes the investment of venture capital producing attractive returns. Hence, venture
funds are always in search of an innovative business proposal, which they can finance.

The paper recommends that the concept of venture capital should be popularized, because it
writes the history of successful enterprises.

References:
Desai Vasant (2000): Project Management and Entrepreneurship, Himalaya Publishing
House, Mumbai, p. 76

Khan M Y and Jain P K (2012): Financial Management, McGraw Hill, New Delhi, p. 26.1

Ogden J P, Jen Frank C and O’Connor Philip F (2003): Advanced Corporate Finance:
Policies and Strategies, Pearson Education, Delhi, p. 367