Page 259 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Indian Financial System

Notes  Apart, merchant banking was the necessity of banks themselves which were in need of
non-fund based income so as to improve their profitability margins by all means in the
changed economic scenario.

 Venture capital is the capital provided by firms of professionals who invest alongside
management in young, rapidly growing or changing companies that have the potential
for high growth. Venture capital is a form of equity financing especially designed for
funding high risk and high reward projects.
 A venture capitalist (VC) may provide the seed capital unproven ideas, products, technology
oriented or start up firms.

 The venture capital involves high degrees of risk. Venture capital financing is an actual or
potential equity participation wherein the objective of venture capitalist is to make capital
gain by selling the shares once the firm becomes profitable.

 Venture capital financing is a long term investment. It generally takes a long period to
encash the investment in securities made by the venture capitalists.
 Venture capital funds take an active interest in the management of the assisted firms.
Venture capital projects generate employment, and balanced regional growth indirectly
due to setting up of successful new business.
 Venture capital firms usually recognise the following two main stages when the investment
could be made in a venture namely Early Stage Financing and Later Stage Financing.
 In India the Venture Capital plays a vital role in the development and growth of innovative
entrepreneurships.

12.10 Keywords

Management Buyins (MBIs): Management Buy-ins are funds provided to enable an outside
group of manager(s) to buy an existing company.
Management Buyouts (MBOs): In Management Buyouts (MBOs) venture capital institutions
provide funds to enable the current operating management/ investors to acquire an existing
product line/business.
Merchant Banker: A bank that deals mostly in (but is not limited to) international finance,
long-term loans for companies and underwriting.
Turnarounds: Such form of venture capital financing involves medium to high risk and a time
scale of three to five years.
Underwriting: Underwriting is an agreement, entered into by a company with a financial
agency, in order to ensure that the public will subscribe for the entire issue of shares or
debentures made by the company.

Answers to Self Assessment

1. Capital issues
2. Counseling
3. Three

4. long-term viability
5. merger
6. expiry
7. SEBI
8. ICICI, UTI

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