Context:
Union Budget 2024-25 proposes to set up ₹1000 crore venture capital fund for space economy.
Venture capital:
- A type of funding that provides funds to start-ups or, emerging companies in exchange for equity.
- Results in active involvement of venture capitalists in the company by providing strategic guidance, financial management advice, and networking opportunities.
- Exit – Through a strategic sale, IPO, or occasionally, a buyback by the company’s founders.
- Types of Venture Capital –
- Seed Capital – Very early investment to prove a new idea, often before the startup has fully formed its product or business model.
- Early Stage Financing – Investments given for product development and initial marketing.
- Expansion Financing – Also known as growth financing, this is capital provided to expand market reach, make significant R&D investments, or increase working capital.
- Late Stage Financing – Funding provided to companies that have reached a certain level of maturity right before IPO.
- Benefits – Access to funds without the need to repay, expertise and mentorship from seasoned professionals and networking opportunities.
- Risks – Dilution of ownership and control.
Source: Times of India
Previous Year Question
What does venture capital mean?
[UPSC Civil Services Exam – 2014 Prelims]
(a) A short-term capital provided to industries
(b) A long-term start-up capital provided to new entrepreneurs
(c) Funds provided to industries at times of incurring losses
(d) Funds provided for replacement and renovation of industries
Answer: (b)
