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Venture Capital Fund

Updated on March 15, 2023

A Venture Capital Fund is a sum of money collected from investors to be invested in new companies which are starting up. These companies can be new-age startups based on the digital ecosystem or other small or medium enterprises with high growth potential and good return prospects for investors. Venture Capital Funds are pooled funds run by institutions or entities with specific purpose and are regulated by the SEBI.

What are the features of Venture Capital Fund?

Some features of Venture Capital Fund are :
a) New ventures or startups carry high risk of failure but the return potential is equally high. Hence, Venture Capital Funds target such companies
b) Venture Capital Funds generally invest during the early stages of the company. However, they can invest at a later stage as well, when the company is growing or expanding
c) Venture Capital Fund buys a stake in the startup or target company
d) Venture Capital Fund can also assist with technology, new product category, new product market or provide solution based inputs apart from funding
e) Generally, Venture Capital Fund invests in several startups/companies for diversifying and mitigating risk

What are the limitations of Venture Capital Fund?

Venture Capital Fund has certain limitations like –
a) After investing in a startup, Venture Capital Funds become part owners which means they interfere in the decision making process. This can cause friction between them and the founders which might impact the firm’s functioning.
b) Venture Capital Fund is a time consuming and lengthy proces and the assessment might cause delay for both parties.
c) Venture Capital financing is not easy to source.