Importance of Venture Capital Financing
The following are the importance of venture capital financing.
1. Promotes Entrepreneurs: Just as a scientist brings out his laboratory findings to reality and makes it commercially successful, similarly, an entrepreneur converts his technical know-how to a commercially viable project with the assistance of venture capital institutions.
2. Promotes products: New products with modern technology become commercially feasible mainly due to the financial assistance of venture capital institutions.
3. Encourages customers: The financial institutions provide venture capital to their customers not as a mere financial assistance but more as a package deal which includes assistance in management, marketing, technical and others.
Example: Hot mail dot com. It was a project invented by an young Indian graduate from Bangalore, by name Sabir Bhatia. This project was developed by him due to the financial assistance provided by the venture capital firms in Silicon Valley, U.S.A. His project was later on purchased by Microsoft company, U.S.A. The Chairman of the company, Mr. Bill Gates offered 400 Million US Dollars in hot cash.
4. Brings out latent talent: While funding entrepreneurs, the venture capital institutions give more thrust to potential talent of the borrower which helps in the growth of the borrowing concern.
5. Promotes exports: The Venture capital institution encourages export oriented units because of which there is more foreign exchange earnings of the country.
6. As Catalyst: A venture capital institution acts as more as a catalyst in improving the financial and managerial talents of the borrowing concern. The borrowing concerns will be more keen to become self dependent and will take necessary measures to repay the loan.
7. Creates more employment opportunities: By promoting entrepreneurship, venture capital institutions are encouraging self employment and this will motivate more educated unemployed to take up new ventures which have not been attempted so far.
8. Brings financial viability: Through their assistance, the venture capital institutions not only improve the borrowing concern but create a situation whereby they can raise their own capital through the capital market. In the process they strengthen the capital market also.
9. Helps technological growth: Modern technology will be put to use in the country when financial institutions encourage business ventures with new technology.
10. Helps sick companies: Many sick companies are able to turn around after getting proper nursing from the venture capital institutions.
11. Helps development of Backward areas: By promoting industries in backward areas, venture capital institutions are responsible for the development of the backward regions and human resources.
12. Helps growth of economy: By promoting new entrepreneurs and by reviving sick units, a fillip is given to the economic growth. There will be increase in the production of consumer goods which improves the standard of living of the people.