Venture capital fund

Venture capital fund

 

Context:

Recently, the Union Cabinet approved ₹1,000-crore venture capital fund to support firms in the space tech domain.

What is Venture Capital?

  • Venture capital (VC) is a form of private equity investment that supports startups and early-stage businesses lacking access to capital markets or traditional loans.
  • These companies are often too new, small, or asset-light to secure traditional financing, but they have significant growth potential.
  • Although venture capital investments are high-risk, they offer investors the chance for substantial returns, making it a popular choice for funding innovative ventures.

How Does Venture Capital Work?

  1. Fundraising: Venture capital firms gather money from a range of investors to form a fund, which is then used to invest in promising startups.
  2. Investment: The venture capital firm identifies startups with high growth potential and invests capital, alongside strategic support, mentorship, and industry connections.
  3. Growth Stage: With capital and guidance from venture capitalists, the funded companies aim to expand. Additional funding rounds may occur during this stage to support scaling.
  4. Exit: The main goal of VC investments is to eventually “exit” with a high return. This is often achieved through an initial public offering (IPO) or a sale to a larger company, allowing venture capitalists to realize returns on their investment.