Venture capital funds are investment funds that manage the money of investors who seek private equity stakes in startup and small- to medium-sized enterprises with strong growth potential.
Venture Capital Funds are classified on the basis of their utilisation at different stages of a business. The 3 main types are early stage financing, expansion financing, and acquisition/buyout financing.
Early-stage financing
There are 3 sub-categories in early-stage financing.
These are seed financing, startup financing, and first-stage financing.
#1. Seed financing is a small sum given to the entrepreneur to serve the purpose of qualifying for a startup loan.
#2. Startup financing is when companies receive funds to complete the development of its services and products.
#3. When companies need capital to begin business activities in full swing, they need first stage financing.
Expansion financing
Expansion financing is classified into second-stage financing, bridge financing, and third stage financing.
#1. The second stage and third stage financing are given to companies so that they can start their expansion process in a major way.
#2. Bridge financing is offered to companies in the form of monetary support when they employ Initial Public Offerings (IPO) as a principal business strategy.
Acquisition or buyout financing
Acquisition finance and leveraged buyout financing are the categories falling under acquisition or buyout financing.
#1. When a company needs funds to acquire another company or parts of a company, acquisition financing comes to aid.
#2. Leveraged buyout financing is required when a management group of a company wishes to acquire another company’s particular product.
INTEGRATED GUIDANCE PROGRAM CUM TEST SERIES FOR COMMERCE AND ACCOUNTANCY OPTIONAL- UPSC 2020
