Give the meaning of Venture Capital. Entrepreneurs can seek venture capital to assist various stages in the company development. Explain Seed Capital stage and Pre-start-up and Start-up stage of financing by venture capitalists.

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Accepted Answer

**Venture Capital** is a type of private equity capital provided as seed funding to early-stage, high-potential, high-risk, growth-up companies/entrepreneurs who lack the necessary experience and funds to give shape to their ideas. It is an equity-based investment in a growth-oriented small to medium business to enable the investors to accomplish objectives, in return for minority shareholding in the business.

**Seed Capital Stage:**

Seed capital finance refers to the capital required by an entrepreneur for conducting research at the pre-commercialization 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 the 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, an investor (VC) may deny assistance if he does not see any potential in the idea. The entrepreneur's ability, technological skills, and competencies are required to match market opportunities so as to successfully convince the venture capitalist about the product/idea's feasibility.

**Pre-start-up and Start-up Stage:**

If the idea/product/process is qualified for further investigation and/or investment, the process goes 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 at the board of directors. While the organization is being set up, the idea/product gets its form. The prototype is being developed and fully tested. In some cases, clients are being attracted for initial sales. The management team establishes a feasible production line to produce the product. The VC firm monitors the feasibility of the product and the capability of the management team from the board of directors.