Informal Risk Capital and

Venture Capital

Module 6
 Learning objectives
• Informal risk capital market
• venture capital, nature and overview,
• venture capital process, locating venture capitalists,
• approaching venture capitalists.
• Social enterprise-need, types, characteristics and benefits
• Rural entrepreneurship
• need and problems of rural entrepreneurship
• challenges and opportunities-Role of government.
 Risk capital

• Risk capital refers to funds used for high-risk, high-reward investments

• Diversification is key for successful investment of risk capital.

• risk capital may also refer to funds invested in a promising start-up.

• Business angel investors are a significant source of funding for technology-

 Venture preference

• Most financing in startups or ventures less than 5 years old

• Most interest in financing
• Manufacturing-industrial/ commercial products.
• Energy/natural resources.
• Services.
• Software.
Types of venture capital firms
 venture-capital process
The venture-capital process can be broken down into four primary stages:

• Preliminary screening

• Agreement on principal terms

• Due diligence

• Final approval.
Guidelines for Dealing with Venture Capitalists

• determine the venture capitalist to approach for funding

• do not discuss the deal with other venture capitalists.
• approach a venture capitalist through an intermediary
• Do not bring a lawyer, accountant or other advisors to the first
meeting
• Disclose any significant problems or negative situations in this initial
meeting
Guidelines for Dealing with Venture Capitalists

• Reach a flexible, reasonable understanding with the venture capitalist

• Do not sell the project on the basis that other venture capitalists
• Do not show an inordinate concern for salary, benefits
• Eliminate to the extent possible any use of new dollars to take care of
past problems
 Social Enterprise

• A social enterprise is a business with primarily social objectives

• whose surplus are principally reinvested for that purpose in the business or

in the community,

• rather than being driven by the need to maximize profit for shareholders

and owners
 Need of Social Enterprises

• To meet a need in the community

• Advance or achieve a specific social mission

• Contribute to the financial sustainability of a non-profit organization

 Types of Social Enterprises

• Community Enterprises
• Social Firms
• Co-operatives
• Credit Unions
• Community Development Finance Institutions
• Development Trusts
• Public sector spin-outs
• Trading arms of charities
• Fair Trade organisations
• Other types of social enterprise
 Characteristics of Social Enterprises

• it trades primarily to support a social purpose.

• social enterprise has clear social or environmental aims
• seeks to reinvest those profits principally in the business
• Social enterprises are structured, owned and governed by a range of
stakeholders
 Benefits of Social Enterprises

• Provides an opportunity for local people to gain employment

• Brings about a positive change to people and communities
• Social benefits – provides facilities to disadvantaged people
• Profits/surpluses are ploughed back into the organisation. This could be
used to develop new products/services/activities
• People have more ownership
• Provides a formal recognised structure for your enterprise.
• Gives the flexibility and freedom of being able to trade commercially whilst
still fulfilling social aims.
 Rural Entrepreneurship

• Entrepreneurship emerging in rural areas.

• In other word establishing industrial units in the rural areas refers to

rural entrepreneurship.

• Rural industries are generally associated with agriculture

 village industries
• Mineral based Industry
• Forest based Industry
• Agro based Industry
• Polymer and Chemical based Industry
• Engineering and non-conventional industry
• Textile Industry including Khadi
• Service Industry
 Need for Rural Entrepreneurship

• Rural Industries being labour intensive have high potential in

employment generation
• high potential for income generation in the rural areas.
• promote balanced regional development
• helps build up village republics.
• promote the art and creativity
• Rural Industrialization fosters economic development in rural areas
• rural industries being environment friendly lead to development
without destruction.
 Problems of Rural Entrepreneurship

• Inadequate flow of credit

• Use of obsolete technology, machinery and equipment.
• Poor Quality standards
• Inadequate infrastructural facilities.
 Challenges and Opportunities - Role of
Government.
• Training
• Marketing Assistance
• Promotional Schemes
• Concession on Excise Duty
• Credit Facility to MSME
• Policies and Schemes for Promotion of MSME Implemented by State
Governments