VENTURE CAPITAL COMPANY REGISTRATION
Venture Capital Funds are fundamentally investing funds. These funds seek out private equity stakes in high growth potential start-ups and thus invest their money into it. Such funds are extremely risky plus illiquid. Though, they are supported by well- calculated projections of high returns and growth in future. Many times, these funding companies come across queries where an individual or a group of entities express their interest in investing their funds in the start-up sector, without inflowing in the field directly. Setting up a VCF is the quick resolution for such investors. You may invest your funds in any segment and any start-up. There is no limit on it. You may as well exercise a substantial degree of control. Such investments are typically rewarding in the long-run.
What is Venture Capital Company?
Venture capital is an enterprise that helps in delivering financial support by way of capitals to a minor, emerging, early stage, and start-up firms. Venture capitalists involve in the zones where there is an excellent development potential regarding revenues. In exchange for parity, these investments are carried out in the rising start-ups, wherever the venture capitalists possess ownership stake.
These companies take jeopardy of finance to generate the result which is effective enough for the growing start-ups. The venture capitalists assess start-ups by advanced technology, business model, tactics, and urge to being successful. These companies emphasise on precise sectors that run successfully and have acquired the marketplace.
The equity stake in the business depends on the growth and success of the business, so venture capitalists are cautious while deciding where to invest. A proper evaluation of the firm, in which the money needs to be funded is done by way of well-built business model, probably for rapid growth, extraordinary management team, and the current scenario prevailing. Ventures are attracted towards the companies that possess high growth potential as such chances are proficient of providing financial revenues.
What is the venture capital registration procedure?
Following procedure needs to be followed for registering a venture capital company:
- Incorporation of the establishment, conferring to the Companies Act, 2013 using the objective to act as venture capitalists, i.e. activities must be carried on the business of venture capital funds. The memorandum must prohibit inviting the public to subscribe to its securities. The director of the projected company must not be involved in lawsuits connected to securities market and must be a proper and a fit person, not at any time imprisoned of an offence concerning moral turpitude or any monetary offence.
- For the registration grating, SEBI (Venture Capital Funds) Guidelines, 1996 needs to be followed. An application Form A must be submitted along with the essential documents and subscriptions of Rs. 1,00,0000. In that, a photocopy of Memorandum and Articles of Association and Investment Management Agreement (if applicable).
- Along with the request form and other documents, particulars relating to the speculation manager, investment consultant, AMC activities, detailed description and summary of the directors, shareholding pattern, main personnel/management team and any other such niceties as requisite needs to be given.
- A statement concerning whether the enterprise is registered with the SEBI in any capacity or not is to be unveiled.
- Appropriate disclosure of Investment plan needs to be done, stipulating the investment style/pattern, projected corpus, class of investors and life sequence of the fund and other pertinent information.
- Declarations like undertaking under Regulation 11(3) of SEBI (Venture Capital Funds) Regulations, 1996, undertaking under 3rd schedule to SEBI (Venture Capital funds) regulations, 1996 etc needs to be furnished.
- On receipt of the request the board assesses the documents and after being gratified, intimates the aspirant.
- The applicant on receipt of the indication by board pays the fees, as stated.
- Grant of the certificate is acknowledged in Form B.
What is venture capital financing?
Venture capital financing is a kind of funding processed by venture capital. It is private equity offered as seed funding to high-potential, early-stage, growing start-up companies, or often it is after a seed funding round as a growing funding round (also called as series A round). It is offered in the interest of producing revenue on investment by an eventual realisation affair such as IPO or a company’s trade sale.
Hence, form the above description we may say that Venture Capital investments have the below mentioned features:
- This type of investment is of high risk with the intention of making significant profits.
- The investments made are long-term goal based
- The investments made in a start-up company are carried out only if the company has enough potential to grow.
- The growing organisations lack funding
- Money is capitalised by buying the equity shares of a start-up company
- Investments are usually made in innovative projects such as in the technological and biotechnological fields.
- The Venture Capital supplier participates in the company’s management.
Types of Venture Capital Financing
Their application on several business stages classifies various types of Venture Capital Financings. The three critical types of Venture Capital Financing are:
- Early stage financing: this financing stage has three sub-divisions – seed financing, start-up financing, and first stage financing. Early stage financing is typically a small amount that a start-up origination receives for the determination of being eligible for a loan.
- Expansion financing: this can be categorized in second stage, bridge, and third stage financing or mezzanine financing. It is provided to those companies who are ready to start their business expansion.
- Acquisition financing: or buyout financed is categorized in acquisition management or leveraged buyout financing and acquisition finance. The financing supports a company to attain certain portion or an entire organisation.
Venture Capital Financing – Advantages and disadvantages
The advantages and disadvantages of capital financing are many. Some of which are states below:
- The control and autonomy of the founder is lost as the investing party becomes the part owner
- The procedure is complex and lengthy as it involves abundant risk
- The object and income return capacity of the investment is indefinite
- Long-term goals make the stakes this the outcome is returned late
- However, the investment is uncertain and time taking but the expertise and wealth brought to investors is huge
- The equity finance sum that can be delivered is huge
- The entrepreneur is at a safe position as the business is not running on the obligation to repay the funds as the investor is well aware of the ambiguity of the project
Exit route for Venture Capatilists
There are a lot of exit options for a Venture Capitalists to cash out the investment made in any organisation:
- Promoter buyback
- Selling the shares to another strategic investor
- Acquisitions and Mergers
- Money is yours. Venture Capital and angel investors are betting on the accomplishment of your business. If you succeed, they win immensely. If you lose, their entire share is lost. Unlike a bank loan, the industry owner has no compulsion to repay venture capital.
- Resources to Compete. Usually, high tech industries require noteworthy capital to rapidly scale to the point where they may enter and compete in a marketplace. A substantial incursion of capital into a fast emergent corporation can mean the difference between failure and success.
- Connections and Expertise. The right venture capital company may add unique expertise and crucial management skills to your enterprise. Since Venture Capital has a conferred interest in your success, they will want you to have the finest business and management support possible. They also may have valuable connections in your industry and deep-pocketed networks who may also agree to invest in your enterprise.
- Control. Your investors own portion of your business. Venture Capital funding originates with strings attached. Depending on the quantity of equity granted to the Venture Capital, the investors may gain the right to make regulatory decisions for the business.
- Misaligned Goals and Priorities. Venture Capital firms do not primarily want what you believe is best for your business in the long run. Their significance is doing what is best for the outcome on their schedule. Your company may not be prepared to grow as rapidly or in the same route as your investors demand. If your trade model is truly superior, you may be gratuitously forfeiting a noteworthy share of future incomes by utilising Venture Capital funding at start-up.
- Encourages Lack of Spending Discipline. A start-up crew with too much investment may fail to advance the budgeting skills essential to attain long-term growth.
- Managerial Distraction. When excessive of a manager’s attention is abstracted by outside shareholders, whose ideas may not substantially coincide with your own, the business’s daily operations may suffer.
- While considering venture capital funding, continue carefully. There is not a right or wrong to find an investment company for your business. Weigh the negatives and positives of your condition very carefully. Examine your every financial possibility. Always remember, Venture Capital interest will not essentially equal accomplishment.
Taking into consideration the risk involved in Venture Capital investments complementing the higher expectancy of returns, one must do a keen study of the considered project and weigh the risk-return ratio that may be expected. You need to your homework both on the Venture Capital that has been targeted and as well on the business necessities.