Venture Capital Institutions

Venture Capital is a form of equity finance designed specially for funding high risk and high reward projects of young entrepreneurs. It helps them to turn their research and development projects into commercial ventures by providing them the initial capital and managerial assistance.

The initial capital is provided in the form of equity participation through direct purchase of the shares and debentures of the enterprise set up for the purpose. The institutions providing venture capital also actively participate in the management of the entrepreneurs’ business.

By actively involving and supporting the enterprises, they are able to protect and enhance the value of their investment.

The development of venture capital institutions is of recent origin in India. The concept was formally introduced in 1986-87 when the Government announced the creation of a venture fund to be operated by IDBI. It was followed by ICICI, IFCI and two public sector banks (State Bank of India and Canara Bank) who set up separate companies for the purpose.

Some state government controlled development financial institutions - Gujarat Industrial Investment Corporation and Andhra Pradesh State Corporation - also promoted their venture capital companies.

In 1992-93, SIDBI also set up a venture capital fund for providing financial assistance for innovative ventures in small-scale sector.