Types of Venture Capital Funds

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