Venture capitalists in India in addition to using their own funds make use of many other sources such as all India Financial Institutions, Foreign Institutional Investors, Multilateral Development Agencies, Foreign Investors, Private Sector Banks, Nationalized Banks, Public Sector banks, State Financial Institutions, Non-Resident Indians, Insurance Companies, and other Banks and Mutual Fund, to obtain equity funds.
Some of the debt instruments used for venture capital financing include income notes, non-convertible debentures, partly convertible debentures fully convertible debentures, zero interest bonds, secured premium notes, deep discount bonds, conditional loans etc.
The process by which venture capital companies continue to involve themselves in the operations of concerns assisted by them, is called ‘investment nurturing’. There is an enduring relationship of after funding care between the venture capital companies and the units assisted by them.
Following are the objectives of investment nurturing undertaken by the venture capital companies:
1. Ensuring proper utilization of assistance provided, any deviation from the program/appraisal should be with the prior approval of the VCI.
2. Ensuring the implementation of the project/venture within the time and cost/envisaged
3. Assisting in finding additional or supplementary finance, in case of time and cost over runs beyond the control of the VCU.
4. Providing strategic inputs in technology, production, finance, marketing, personnel and so on.
5. Anticipating likely problems and advise preventive/remedial actions
6. Ensuring that the venture does not default in any statutory/other obligations
7. Evaluating the performance of the project and suggesting measures for improvement, if required
8. Making use of the feedback received during the course of nurturing the investment, to study any problems and finding suitable solutions.
9. Utilizing past experience for a better appraisal of new ventures
The main elements of nurturing are as follows:
1. Provision of continuing guidance and support to optimize the benefits of investment to both the venture capital companies and the units concerned.
2. Building a joint relationship to tackle operational and other problems of business.
3. Protection of the investment/interest of the venture capitalists.
Styles of Venture Financing:
The extent of participation by the venture capital companies in the affairs of the assisted units constitutes the style of nurturing. The style depends upon a variety of factors such as the specialization of the venture capital company, the stage of investment, financing plan, the stage of development of the venture capital industry, etc. The different categories of styles that are adopted for venture financing are as follows:
Hands on Nurturing:
Continuous and constant involvement in the operations of the investee company by way of representation on the board of directors is referred to as hands on nurturing. Venture capital companies provide useful guidance ion aspects of long term business planning, technology development financial planning marketing strategy, etc to the units assisted by them. It is an essential style of financing in the early stage of the project. This type of care is provided either by in house expertise, or by a core group of external advisors/experts in specific areas.
According to this style of nurturing, venture capital companies do not take part in the appointment of nominee directors on the board of the assisted firms. The venture capitalists do not normally actively participate in formulating strategies/policy matters, in spite of the right to do so. This type of nurturing style is appropriate in case of syndicated/joint/consortium venture financing. The hands off style may also be appropriate after the initial plan of the vebture is over, and the business is running smoothly.
Hands holding Nurturing:
In this style, the venture capital companies take part in the management of the ventures only when approached by the units. Venture capitalists provide either in-house assistance or arrange assistance, from outside experts.