Capital Venture is a type of equity, a form of financing that is provided to small, early-stage, emerging firms that are deemed to have high growth potential or which have demonstrated high growth (in terms of number of employees, annual revenue or both).
Start-up companies with a potential to grow need a certain amount of investment. Wealthy investors like to invest their capital in such business with a long term growth perspective. This capital is known as capital venture and the investors are called venture capitalists.
The startups are usually based on an innovative technology or business model and they are usually from the high technology industries such as Information Technology (IT), social media or biotechnology.
The typical capital venture investment occurs after an initial “seed funding”. Venture capitalists provide this financing in the interest of generating a return through an eventual “exit” event, such as the company selling shares to the public for the first time in an Initial Public Offering (IPO). Or doing a merger and acquisition (also known as “trade sale”) of the company.
The growth of VC firms in the developing countries is very recent origin. In most of the developing countries it is not older than 10 years. There are at least 2 reasons for this:-
- First, most of these do not have one of the primary requirements for a venture capital industry.
- Second, most of them do not have large pension funds etc., which are the main financers of VCs worldwide.
But all these factors are now changing. However as major positive factor, which can pave the way for a systematic growth of the sector in developing countries is the fact. Unlike in developed countries, the main center of innovation is individuals as opposed to companies and research institution and universities in developed countries.
Is it possible for a developing countries like Nepal :
Nepal is a country in developing phase. Recently, it has beared huge losses due to the massive earthquake in 2015. So, it needs to be rebuilt. For this, Nepal requires a lot of funds. VC plays a vital role in their process of rebuilding and development. While the local VC industry is still in its pre-fledging phase, the future prospects in Nepal have started to brighten up. With a relatively stable economy and rapidly growing disposable income, it should come as no surprise that the demand for investment continues to increase. VCs are finding several sectors particularly attractive, Information Technology, education, healthcare, agriculture and tourism amongst others.
Investment opportunities are also arising in more niche sectors like organic agriculture business and handicrafts. Although an enabling environment for VC industry is broadening, it still has a long way to go.
Mostly there are four enablers that could support venture capital, help mature our entrepreneurial landscape and improve investors’ sentiment. They are as following.
- Building a robust pipeline,
- Working with government,
- Improving corporate hygiene,
- Corporate financed venture funds .
As much as i have studied and as per my working experience, the venture capital industry is now on a growth trajectory although highly uneven as far as the developing countries are considered. In fact the industry is just confined only to the developing countries from Asia, while its growth in Latin America and Africa is very ineffectual or partially non-existent. In these cases, VC industries exist merely as a subset of private equity industry.
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