Banky’s Understanding: VC = long-term investment in businesses with potential for significant growth and financial returns. Provided as equity (not loan). VCs are not just financiers — they bear risk. Return depends on business success. Most distinguishing feature: invests where probability of loss is HIGH but potential returns are also high. ⚠️ ‘VC finances ESTABLISHED projects’ = INCORRECT (exam PYQ — VC finances startups/new projects!).

Banky’s Understanding: Bhatt Committee (1972): Recommended creation of VC in India. IFCI Risk Capital Foundation (1975): India’s FIRST VC fund — supplemented promoters’ equity. IDBI Seed Capital (1976): Same objective. Technology Policy Statement 1983: Official patronage. ICICI VC Scheme (1986): High-tech/high-risk. TDICI (1988): ICICI-sponsored VC company. SEBI Regulations 1996 (amended 2000). India’s startup VC: $17.2B in Jan-Jul 2021 (vs $11.1B in full 2020!).

Banky’s Understanding: VC features: (a) Equity-based — risk capital not available elsewhere. (b) VC doesn’t intend to be owner — guides but doesn’t manage daily operations. (c) Exits when company becomes profitable. (d) Earns via capital gains (not interest). (e) Conditional loans — royalties on sales (waived if unsuccessful). ⚠️ ‘Investments based on short-term goals’ = INCORRECT (exam PYQ — VC is LONG-TERM!). VC invests in innovative, technology, biotech projects.

Banky’s Understanding: Early-stage: (1) Seed capital — R&D, prototype, lab scale, highest risk, personal loans. (2) Startup — commercial production launch, high risk, equity funding. (3) Second round — post-launch but not yet profitable, less risky, debt also possible. ⚠️ Second round = EARLY stage (exam PYQ!). Later-stage: (1) Expansion — adding capacity, organic/acquisition growth. (2) Buyout — management/leveraged buyouts. (3) Replacement — replacing existing investors. (4) Turnaround — financing sick companies for revival.

Banky’s Understanding: 6-step process: (1) Deal origination — identifying potential ventures (referrals, network). (2) Screening — filtering based on product, market, technology. (3) Evaluation — deep dive into promoter skills, technical competence, risk. (4) Deal negotiation — terms, investment amount, profit share, rights. (5) Post-investment — board representation, monitoring, NOT daily management. (6) Exit plan — IPO, buyback, sale, liquidation.

Banky’s Understanding: VCF: Trust or company registered with SEBI. Dedicated pool of capital. Invests in VCUs. Under AIF Category I. VCU (Venture Capital Undertaking): Unlisted domestic company. NOT on negative list. Negative list: real estate, NBFC, gold financing, activities not in industrial policy. Min investor: ₹5 lakh (exception: employees/directors/NRIs). Promoter must be ‘fit and proper’. Registration conditions: main objective in MoA, no public invitation, no litigation history.

Banky’s Understanding: 6 exit routes: (1) IPO — shares listed on exchange, sold at premium (most profitable!). (2) Promoter buyback — promoters buy VC’s shares at market price (first right). (3) Sale to outsider — sell entire enterprise to interested buyer. (4) Sale to new VC — another VC buys the stake (could be distress sale or induction). (5) Self-liquidation — debt financing repaid in installments. (6) Winding up — if unsuccessful, recover via court proceedings.

Banky’s Understanding: Equity participation: Primary mode — buying shares. Conditional loans: Entitle VC to royalties on sales. Waived if business unsuccessful. Convertible loans: Convert to equity later at VC’s option. Conventional loans: Normal term loans with interest, repaid in installments. VC primarily invests via equity — earns through capital appreciation when company grows and shares increase in value.