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TMI BlogEmpirical examination of Venture Capital financing and it being a CanalystX X X X Extracts X X X X X X X X Extracts X X X X ..... Empirical examination of Venture Capital financing and it being a Canalyst - By: - aabhas soni - Corporate Laws / IBC / SEBI - Dated:- 20-8-2022 - - The combination of entrepreneurship education in schools and colleges, the hassle-free flow of venture capital and evolution of good market will give momentum for the National Growth. - By A.P.J Abdul Kalam INTRODUCTION The term venture capital simply points to the funding supplied by the venture capitalists, who make investments in start-ups or very young, high-growth businesses with the potential to become very successful businesses. It has both high risk and high return features. As a result, it serves as a crucial source of funding for business owners with innovative i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deas. For enterprises with significant upfront financial needs and no other affordable options, venture capital is the most suited type of finance. WHAT EXACTLY IS VENTURE CAPITAL? A private or individual or institutional investment is being made in early-stage start-ups. Investments in start-ups and small enterprises with very enormous growth potential are known as venture capital. Venture capitalists are those who make these investments. When a venture capitalist purchases stock in a start-up firm, they are making an investment by joining the company as a financial partner. The danger of losing the money if the enterprise fails is what is known as the large capital risk or patient risk component of venture capital. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is essentially the sum of money that an outside investor invests to finance a start-up, expanding, or struggling company. Instead of being provided as a loan, the capitalists' investment is made in exchange for an equity interest in the company. IMPORTANCE OF VENTURE CAPITAL With the aid of these venture capital organizations or consortiums, entrepreneurs may turn their ideas into financially successful companies. It makes it possible for new items using cutting-edge technology to be sold commercially. It encourages export-oriented businesses to generate or give rise to more foreign currency. It helps with managerial, technological, and other areas in addition to providing the financial institution. It enhances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the borrowing company's status and makes it possible for them to raise their own capital through the capital market by strengthening the capital market. By encouraging commercial endeavours using innovative technology, financial institutions support contemporary technology. Many ill firms recover or recuperate after receiving adequate care from these Venture Capital organizations. VENTURE CAPITAL IN REPUBLIC OF INDIA Evolution of the Venture Capital The first study on risk capital in India was published in 1983. It showed that new businesses frequently encounter obstacles when trying to access the capital market and raise equity financing, which hinders their ability to expand and thrive in the future. Additiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly, it suggested that in order to evaluate the equity cult generally, a competitive return on equity investment is required. All of this manifested as institutional shortcomings and led to the development of venture capital. When IFCO created the Risk Capital Foundation in 1975, it became the first organization in India to introduce the concept of venture capital. It supported all tiny and risky ventures with the initial funding. However, the budget for the fiscal year 1986 87 was the first to acknowledge the idea of venture capital. OBJECTIVES OF VENTURE CAPITAL IN INDIA It makes it possible for investors and startups/businesses to collaborate closely, and it encourages entrepreneurs to concentrate on developing more and more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concepts. It produces a setting ideal for knowledge- and technology-based businesses. It aids in transforming ideas based on science, technology, and information into effective engines of economic growth and wealth generation. It attempts to catalyze India's positioning as a success story throughout the globe. Venture capital financing procedure The Venture Capital Funding process gets completed in six different stages: SEED STAGE An entrepreneur is given a little quantity of money at this point to market a better concept with potential. Before making any investments, the investor looks over the business plan. If he is not happy with the idea or does not think the product has promise, the investo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r may decide against funding the project. However, if a portion of the idea is viable, the investor may continue to invest time and resources in the project. Because there are so many unknown elements at this point, the risk factor is quite high. STARTUP STAGE The second stage, also known as the start-up stage, of the process is initiated if the idea or product is suitable for further research. Venture Capital must now file a business plan that must contain the following information:- The business plan's executive summary, Examining the existing competitive environment, Exhaustive financial forecasts, Information on the business's management, Information about the market's size and potential. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforementioned analysis must be provided in order for venture capital to decide whether or not to fund the business. This kind of funding is offered to finish product development and launch the first marketing campaigns. SECOND STAGE At this point, the concept has developed into a thing that is bought and sold. At this point, Ventures' major objective is to squeeze in between the competition and take part of their market share. The management is being watched over by venture capital companies to determine the team's capacity in order to guarantee the product's development process and how they handle competition. If businesses learn that their skills are inferior to those of the rivals. The Venture Capital might not go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the following step therefore. Working capital is offered at this step of the financing process for the business' development, including expanding accounts and inventory. As the product is no longer evolving at the earlier start-up stage, the risk factor lowers at this point. However, it focuses on the product's advertising and sales. THIRD STAGE Later stage financing is another name for this phase. An firm with a basic marketing setup is given capital, usually for product development, market growth, and other purposes. The goal of subsequent ventures is to increase market shares through stronger marketing promotion and product sales. Venture capital examines current stage goals as well as those from prior stages, su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch as the second stage, to see whether the team has reduced costs as anticipated or not. Because the likelihood of failure in the latter stage is low, venture capitalists choose this stage over all others. Additionally, organizations at this level have a history of management, data on prior performance, and a set system collecting financial reporting. Because the venture depends on the revenue from the sales of the present product, risk is still declining at this point. IPO STAGE This phase is often referred to as the bridge financing phase. It is the final finance round before departure. At this point, the Ventures receive a specific number of shares, which provides them with options like merger and acquisition, removing compe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titors, and discouraging new businesses from entering the market. Venture must now assess the position of the product and, if necessary, reposition it to appeal to a new market. RAISING CAPITAL BY START-UPS Due to the initial capital required before success, bootstrapping and bank funding are frequently not a realistic solution for many entrepreneurs. Therefore, the majority of startups choose financing through venture capital organizations since it greatly reduces their financial load and enables them to concentrate on their core business. A start-up initially often depends on the funds of the founders as well as investors that provide money at the start-very up's early stages, known as seed capital. The notion of angel inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors is established by the AIF Regulations in India. Angel investors might be an individual, a corporation, or an AIF that has been registered. As the start-up expands, it obtains money through a succession of investments classified as Seed or Pre-Series A, Series A, Series B, and Series C investments, depending on its needs and market position. An entrepreneur has a lot of options after obtaining venture financing. As a start-net up's value increases, its creditworthiness increases. An alluring and convenient way to raise initial funds is through angel investing. An active position in the company, board representation, or any other unique shareholder rights are often not sought for by angel investors. Start-ups employ Series A ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital to develop business strategies that provide long-term profit while also optimizing their product offerings and customer base. The volume of activities and the number of users are key considerations at this point. In this round of investment, early-stage venture capital companies are frequently seen investing. The innovation has now advanced past the proof-of-concept stage, entered the market, and demonstrated some signs of momentum. The second round of capital, known as Series B, is where the emphasis is on developing and expanding the company to new heights. When specific specified milestones are met, venture capitalists and private equity investors add to a company's capital. Compared to Series A fundraising, the cost of fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncing is greater at this level. The third round of investment, known as Series C finance, is typically made available to growing companies so that investors may profit from their continued rapid and extensive growth. This round reflects stabilizing credit lines received from investors that support the startup's expansion strategy. JUDICAL VIEW Recent judicial decisions by Indian courts are anticipated to increase investor confidence and promote a positive business environment. The Delhi High Court [1] recently upheld an international arbitral award against the promoters of an Indian company for concealing information about proceedings brought against them by the United States Food and Drug Administration while selling thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r shares in favor of a foreign investor and in favor of the foreign investor. In another instance, NTT Docomo v. Tata Sons Limited [2] , the court upheld the arbitral decision in Docomo's favor. By holding Indian parties accountable for their contractual obligations and forbidding them from invoking the Foreign Exchange Laws as a defense, the court's decision amply illustrated the significance of fostering an environment that is advantageous for foreign investment. TAX MATTERS RELATED TO VENTURE CAPITAL FUNDS Indian venture capital funds may tax repayment under Section 10(23FB) of the Income Tax Act, 1961. A SEBI-registered venture capital fund (formed as a trust or a firm) established to raise money for investments in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a venture capital enterprise is exempt from paying taxes on any income it receives. If they adhere to the same requirements as domestic VCFs and VCCs, it will also apply to domestic VCFs and VCCs that accept investments from foreign venture capital firms. On the other hand, the venture capital fund is free to engage in any industry if it is ready to give up the tax advantages offered by Section 10(23F) of the Income Tax Act . CONCLUSION As global marketplaces become more and more competitive, it is important to pick the appropriate human capital to direct and oversee new initiatives as well as the necessary funding. Indian venture capitalists have made sure that there are more opportunities for growth. A significant portion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the economy, including the pharmaceutical, information technology, and other service sectors, is ready for venture capital investors. As a result, venture capitalists are responding favourably to doing business in India. A comprehensive investigation should be conducted before beginning the process because there is a danger aspect. [1] https://www.businesstoday.in/pti-feed/story/hc-upholds-rs-3500-cr-arbitral-award-in-favour-of-daiichi-98165-2018-01-31 [2] NTT DOCOMO INC. VERSUS TATA SONS LIMITED - 2017 (5) TMI 492 - DELHI HIGH COURT - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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