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What is ‘venture capital’? Explain the mode of raising funds.

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The term ‘venture capital’ is defined as a equity by which an investor supports an entrepreneur talent with finance and business skills to exploit market opportunities and thus obtain a longterm market gains. These are investors and investment companies whose specialty is financing new, high potential, high- technology oriented entrepreneurial ventures. 

The mode of raising funds through venture capitalists: 

1. They are more interested in financing ventures which are in their second or third stage of development . 

2. They often provide initial equity investment to start up a business such ventures can be of software, biotechnology, high-potential ventures, high-technology ventures or are venture having high potential prospects and returns expected. 

3. Venture capitalists look for a high rate of return. Thus, they want equity, or some share of ownership in return for their capital. 

4. They are willing to take the higher risk of losing their capital for a chance of profit from the business’s success. 

5. The venture capitalist sells his or her percentage of the business to either another investor or back to the entrepreneur after specific number of years association or when he finds returns lowering down. 

6. Mostly small business approach to venture capitalists when they want to start or grow a business but couldn’t persuade banks to lend money. 

7. These investors have a deep insight about the fields in which they make their investment, but they behave like more or less as non-working partners do not interfere in the management of the enterprise but protect them at initial stage by keeping good contact with them. 

8. Venture capitalists are more careful while investing in any venture as they know that investment is highly illiquid. It means it is not subject to repayment on demand.

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