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Resource Mobilization — Entrepreneurship STD 12 Commerce — Question

CBSE BoardEnglish MediumSTD 12 CommerceEntrepreneurshipResource Mobilization4 Marks
Question
When and how to seek Venture Capital Finance?
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Answer

Entrepreneurs can typically seek venture capital to assist at any of the following four stages in the company's development:
  1. Early stage financing this stage includes:
  1. Seed capital finance:
  • It refers to the capital required by an entrepreneur for conducting research at pre-commercialization stage.
  • During this stage, the entrepreneur has to convince the investor (VC) why his idea/ product is worthwhile.
  • The investor will investigate into the technical and the economical feasibility of the idea.
  • In some cases, there is some sort of prototype of the idea/ product that is not fully developed or tested.
  • As the risk element at this stage is very high, investor (VC) may deny to assist if he does not see any potential in the idea.
  • 'Entrepreneur's ability, technological skills and competencies are required to match with the market opportunities so as to successfully convince about product/ idea's feasibility to the venture capitalist.
  1. Start up finance:
  • If the idea/ product/ process is qualified for further investigation and/or investment, the process will go to the second stage; this is also called the start-up stage.
  • A business plan is presented by the entrepreneur to the VC firm. A management team is being formed to run the venture.
  • If the company has a board of directors, a person from the VC firms will take seats at the board of directors.
  • While the organisation is being set up, the idea/ product gets its form.
  • The prototype is being developed and fully tested.
  • Sometimes, clients are being attracted for initial sales. The management-team stablishes a feasible production line to produce the product.
  • The VC firm monitors the feasibility of the product and the capability of the management-team from the board of directors.
  1. Second-round financing:
  • At this stage, the time comes the idea has been transformed into a product and is being produced and sold.
  • This is the first encounter with the rest of the market, the competitors and attempt is to squeeze in the market and get some market share from the competitors.
  • The entrepreneur, at this stage, needs assistance from the Venture Capitalist for expansion, modernization, diversification so that the economies of scale and stability could be attained.
  1. Last stage financing/ bridge/ pre public stage: In general, this is the last stage of the venture capital financing process. The main goal of this stage is for the venture to go public so that investors can exit the venture with a profit commensurate with the risk they have taken. At this stage, the venture achieves a certain amount of market share. This gives the venture some opportunities for example:
  • Merger with other companies.
  • Keeping new competitors away from the market.
  • Eliminate competitors.
  • Development capital.

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