Venture Capital Firms

As the terms and conditions related to venture capital are not uniform, there are few salient features related to venture capital arrangements. This firm is inclined to suppose a higher degree of risk in the probability of earning a higher rate of return.

The capital firm provides funds as well as receives a active interest in directing the assisted firm. The financial load for the assisted firm inclined to be negligible in the 1st few years. The venture firm usually plans to settle its asset in the assisted firm after three to five years. Naturally, the assisted firm’s promoter is given 1st option to obtain the equity investment held by the venture capital firm.

They can increase fund from different sources. The main long term finance sources are preference shares and equity shares issues, issue related to debentures of different types, term loan raise from financial organizations and generation of reserves. These firms may utilize different combinations of these sources by thinking their relative prices and availability and impact on the firm value.

Thus, a firm can have patterns of capital structure like just equity shares, debentures and equity shares, preference shares and equity shares, preference shares reserves and equity shares, equity shares and preference shares/debentures reserves.

The capital structure of firm is biased by the number of factors like stability and growth of sales, and trading on equity. Trading on equity is the utilization of long term, fixed-interest bearing financial resources with equity capital.

Accepting trading on equity may raise the equity return. But, it is possible only when the investment return is higher than the finance cost.