The role of a venture capitalist in an organization is dependent on the stage at which an organization is being funded by the venture capitalist. Evaluate.

Q.1. The role of a venture capitalist in an organization is dependent on the stage at which an organization is being funded by the venture capitalist. Evaluate.

Ans: Seed capital finance:

It refers to the capital required by an entrepreneur for conducting research at the precommercialization stage. During this stage, the entrepreneur has to convince the investor (VC) why his idea/product is worthwhile. The investor will investigate the technical and economical feasibility of the idea. In some cases, there is some sort of
prototype of the idea/product that is not fully developed or tested. As the risk element at this stage is very high, the investor (VC) may deny assisting if he does not see any potential in the idea.

Start-up finance:

If the idea/product/process is qualified for further investigation and/or investment, the process will go to the start-up stage. A business plan is presented by the entrepreneur to the VC firm. A management team is being formed to run the venture. If the company has a board of directors, a person from the VC firms will take seats on the board of directors.

Second-round financing:

At this stage, we presume that the idea has been transformed into a product and is being produced and sold. The entrepreneur, at this stage, needs assistance from the Venture Capitalist for expansion, modernization, and diversification so that economies of scale and stability could be attained. At this time, larger funds than the other earlystage financing are required, entrepreneur should be extra careful because only if they and their management team can prove their capability of standing against the competition, only then is the VC firm interested in financing.

Q.2. Explain in detail the following sources of Idea Fields:

A. Natural resources
B. Existing products or services
C. Market driven ideas
D. Trading related ideas
E. Service related ideas

Ans: Natural resources:

Ideas can be generated based on natural resources. A product or service may be desired from forest resources, agriculture, horticulture, mineral, animal husbandry, wind, sun and human resource.

Existing products or services:

A great business idea combines skills with imagination and market demand. A business opportunity or idea often comes from everyday problems that someone solves. Successful businesses find a need and fill it by providing a service or product. Entrepreneurs who look at ways to make an existing product or service better can be as
successful as those who create or invent products.

Market driven ideas:

Market research is any organized effort to gather information about target markets or customers. It is a very important component of business strategy. It is a key factor to maintain competitiveness over competitors. The research helps in creating new products in the market as per the needs of the customer.

Trading related ideas:

With increasing consumerism, the scope and nature of trade has enlarged; local trade, import and export, e-commerce are all making trading a very wide area of enterprise. With the opening of the market to International Companies, large size departmental
stores, chain shops and umbrella markets have become omnipresent; competition has become intense and to survive in the market, new entrants will have to acquire skills, competencies and knowledge required to launch, manage and expand business opportunities.

Service related ideas: 

Entrepreneurial opportunities are not only restricted to the manufacturer. Service sector is the most growing field these days, the world over, because of the emerging knowledge in societies and advancements in Information and Technology. So, new
opportunities can be identified by understanding the linkages to different business activities.

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