IMPACT OF VENTURE CAPITAL FINANCING IN SMES IN INDIA
Venture capital (VC) is financial capital provided to early-stage, high-potential, high risk, growth startup companies. The venture capital fund makes money by owning equity in the companies it invests. Venture Capital is one source of nonbank financing, which is quite prevalent in developed financial markets for small or start up firms.
Venture Capital is emerging as an important source of finance for small and medium-sized firms, especially for starting the business and business expansion. SMEs have traditionally been dependent on Bank finance for expansion and working capital requirements. However, in the recent past, bankers have curtailed lending to SMEs due to the greater risk of non-performing assets (NPAs) in a downturn. Thus, even though many SMEs have profitable projects and expansion plans, they find it difficult to get finance for their projects, as bankers may not be willing to fund high risk projects. VC scenario in India is rapidly changing. Alternative funding like VC is picking up in the India, including in the MSME sector.
The Small Industries Development Bank of India (SIDBI) is the main public financial institution involved in VC funding operations. Some new VCs are also operating at the SME level, such as Helion Venture Partners, Erasmic Venture Fund (Accel India Venture Fund), Seed Fund, and Upstream Ventures. While technology remains the most sought after investment fields, interest has been shifting from internet companies to other types of operations especially ICT enabled services and bio-technology. A few VCs also operate at the early-stage, including Erasmic Venture Fund, Seed Fund, Infinity Venture, IFI sponsored facilities such as Swiss Tech VCF, and the government schemes such as SIDBI VC and Gujarat VF. Possible sources of smaller investments are represented by local publicsector facilities, business angels, business incubators funds, and isolated cases of seed VCFs, such as the micro venture schemes like Aavishkaar India Micro Venture Capital Fund (AIMVCF).
BENEFITS OF VENTURE CAPITAL OVER OTHER FUNDING METHODS :
- It injects long term equity finance which provides a solid capital base for future growth.
- The venture capitalist is a business partner, sharing both the risks and rewards. Venture capitalists are rewarded by business success and the capital gain.
- The venture capitalist is able to provide practical advice and assistance to the company based on past experience with other companies which were in similar situations.
- The venture capitalist also has a network of contacts in many areas that can add value to the company, such as in recruiting key personnel, providing contacts in international markets, introductions to strategic partners, and if needed co-investments with other venture capital firms when additional rounds of financing are required.
Thus due to beneficial effects of venture capital to smes , they help in the growth and development of company .it is positive to go with venture capital funding.