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Financial markets globally have been witnessing a dramatic shift in the size and the type of investments inflows in the last decade. Investors for their portfolio diversification are seeking new innovative ideas and have resorted to alternative asset classes. Private Equity is one of those asset classes where investment is linked to an asset that is not listed and hence not traded in the stock markets. Private Equity Investments are also possible in listed companies through buy-outs which are carried out through a negotiation process. The reduction in the barriers to entry in the foreign markets for investors has transformed the whole market scenario. Private Equity investments, a decade ago were limited to the IT and outsourcing sector but investors are now beginning to diversify in sectors like Pharmaceuticals, Telecom, Textiles and Retail & Consumer goods industry. The exceeding return on investment that ranges from 20-30 % annually has attracted investors to put their money in the private equity market. The private equity investors adopt various kinds of funding techniques like
Financial Restructuring of companies
Provision of Mezzanine capital
With the rapid advancements in the technology, knowledge driven industries like IT, health-care, and entertainment have witnessed a boom. In the highly competitive and dynamic economic environment Entrepreneurs have felt the need to innovate and use technical capabilities to capitalize on the opportunities in the markets. The industry today does not rely on the 'Traditional business models'. For business ideas to succeed there is a need for a clear understanding of the market, integrity and experience to handle complex real-time situations. One of the factors that contributes to a great extent in the success or the downfall of a start-up enterprise is the timely infusion of funds. These funds required by less mature organizations in order to survive and compete against other established organizations in the market are provided by venture capitalist firms. Venture Capital is usually required for companies which rely heavily on R&D equipment or require a very large working capital for their operations. Venture Capitalists provide companies with money and the business sense for the companies to generate income for their future growth.
Contribution of Private Equity & Venture Capital to the Economy
Private Equity & Venture Capital plays an important role in driving the growth of the economy and also leads to creation of jobs for the skilled labour force of a nation. Private equity & Venture capital enable companies to grow and develop. It provides the support to companies having lower growth rates for their survival in the markets. Through these investments the performance of companies is enhanced to a great extent and enables them to develop new technologies & their applications. Private Equity & Venture Capital is one of the most potent forces driving the improvement throughout the economy to enhance the corporate productivity. Private Equity firms seek companies with growth potential and provide those companies with the capital, talent and strategy to permanently strengthen the company in a manner which would raise their value.
Advantages of Private Equity to growing Companies
Development & Creation of Business.
Exploitation of Creativity & Innovation
Allows Recruitment of highly qualified personnel
New product development & Launch in the market
Improvement in the management capacity
Liquidation of unwanted assets
Key Contributions of Private Equity to the company
Long-term capital for substantial growth
Partnership in sharing the Risks & Returns
Adoption of high performance management standards
Strategic and Operational Support
Alliances due to Investors network of contacts and portfolio of investments.
Concept of private equity
Private Equity is a kind of investment which is done in order to gain significant or even complete control of a company in order to earn a high return. It is a kind of investment in an particular asset which is not publicly traded or a publicly traded asset with the intention of taking it private. Private Equity funds are a form of illiquid assets unlike stocks, mutual funds and bonds. Through the purchase of the companies , the firms can use its assets and revenue sources in order to get high returns on investments. Private Equity transactions extensively use debt in the form if high-yield bonds. Private Equity firms can substantially increase their financial returns by using debt to finance their acquisitions. The various Private Equity investment strategies are:-
Leveraged Buyout involves the use of financial leverage in order to make equity investments a part of a transaction in which a company or its assets are acquired from the current shareholders. The Companies that are involved in Leveraged Buyouts are mature and generate operating cash flows. This form of Private Equity investment involves a financial sponsor who agrees to an acquisition without commitment of all the capital required for the acquisition. The debt raised by the financial sponsor for the acquisition in Non-Recourse to the financial sponsor and does not have any claim on any other investment managed by the financial sponsor. The financial sponsor as an investor needs to provide a fraction of the capital for the acquisition in order to gain an enhanced return on the investment.
Venture Capital involves investments made in less mature companies for the launch, development or the expansion of the company. These investments are done to bring new innovative products or apply new technologies to bring better products in the market. Venture capital may involve investment of funds which may be used as an early stage capital for launching start-up companies or at a later stage as growth capital which may be used for the expansion of existing business which does not have sufficient cash flow to fund future growth.
Growth Capital is a form of equity investment which is done in mature companies who need funds to expand, enter new markets or restructure operations or finance a major acquisition. These companies generate revenue and operating profits but are unable to generate sufficient cash flow to fund major expansions or other investments. The owner of the company can share the risk of growth with the partners by selling a part of the company to private equity.
Distressed Investments are done in equity or debt securities of financially distressed companies in which the investor can either acquire debt securities to emerge from a corporate restructuring in control of company's equity or the investor can provide debt and equity investments to companies undergoing operational or financial challenges.
Mezzanine Capital is a form of subordinated debt or preferred equity securities that are senior to company's common equity. This form of investment is done to reduce the amount of capital required to finance a major acquisition or leverage a buy-out. It is done by smaller companies who are unable to access the high yield market. Through these investments companies can borrow capital more than what the traditional lenders offer through bank loans. Investors who make these kind of investments require a higher return for their investment in compensation for the increased risk.
Investments in Private Equity
Private Equity is a class of assets in which investors allocate capital in order to attain risk adjusted returns higher than those possible in the public equity markets. Institutional investors invest indirectly in privately held companies through private equity funds. The returns for private equity investments are created through the following:-
Debt Repayment or Cash accumulation through cash flows from operations.
Increase in the earnings due to operational improvements.
Selling the Business for a higher multiple of earnings.
Realization of Private Equity investments is done through:-
Initial Public Offering (IPO) through which share of the company are offered to the public.
Mergers/Acquisitions where the company is sold for either cash or shares to another company.
Recapitalization:- Cash is distributed to the shareholders.
Liquidity in the Private Equity
Investors can buy & sell pre-existing investor commitments & other alternative investment funds in the private equity market. Selling of the private equity investment involves selling of not only the investments in the fund but also the unfunded commitments to the fund. Private equity investments are usually long term investments done by investors who prefer to buy-and-hold. Majority of the private equity investments are not listed in the public market
Secondary Transactions in private equity markets can be categorized into:-
Sale of Partnership Interests:- It involves the sale of an investors interest in a private equity fund or portfolio of interests in various funds through the transfer of investor's limited partnership interest in the funds. All types of private equity funds can be sold in the secondary market. The transfer of limited partnership will allow the investor to receive liquidity for the funded investments and release from any remaining unfunded obligations to the fund.
Sale of Direct Interests:- It involves sale of portfolios of direct investments in operating companies. These portfolios have originated from corporate development programs or large financial institutions.
Private Equity Business Model
Creation of a fund and underwriting by the professional investors
Private Equity firms collect capital from the investors through the establishment of investment funds after obtaining the agreement of the controlling authorities. The capital obtained by these private equity firms is used to buy high-potential companies. Institutional investors and individuals with expertise or significant assets are invited by private equity fund managers for subscription of an investment fund for a particular period of time which would take equity stakes in the companies following a well defined strategy of investment. The investment can vary according to the size of the target company, the sector to which it belongs, stage of its development and its geographical location. The fund raising period continues for six months to one year. Private equity investment will bring a great deal of financial stability to the entrepreneur. Investors get a stake in the equity of the investment fund and become the shareholders of the private equity firm in exchange for the money they give to the company. This type of financing is done with a motive to profit from long term capital gain.
Investing the fund
The subscription of the investment fund is closed after the target amount of capital has been raised. If the risks are high or the amount of capital required in substantial then the private equity investment funds form a 'Financial Syndicate' to make an investment. The investments are done in the first five years of the fund.
Managing the Investment
The fund managers are concerned with the creation of value in the company. They run the investment operations in a streamlined manner and prepare the exit strategies depending on the market conditions which are done in advance with the entrepreneurs.
On Exit the capital recovered is redistributed to the original investors depending on the size of their initial investment. The capital gain, the reimbursements allow the institutional investors to honour their savings deposits, pension or insurance contracts. The fund managers may launch a second fund when all the capital collected from the investors has been invested and certain investments have been exited. The new investors will be attracted on the basis of the past historical performance.
Types on Private Equity Investment Funds and their Specialization
Private equity funds can differ in their management structures, their areas of specializations and their shareholders. The private equity fund source can determine if a rapid investment decision can be made or not and can also affect the structure of the deal offered. The different types of private equity funds are :-
Independent private equity funds are those in which no one shareholder holds a majority stake. In these funds the third parties are the main source of capital and it is the most common type of private equity fund.
Captive funds are those in which the parent organization allocates money to fund from its own internal resources. In these funds the shareholders contribute most of the capital. These funds can be subsidiaries of banks, financial institutions. Such kinds of industrial funds are launched by companies in order to invest in sectors which are relevant to their core activities and it also helps them to identify new technologies
Semi-captive funds have shareholders contributing a large part of the capital but a significant share of the capital is raised by third parties. These funds can be subsidiaries of an insurance company, financial institution that operates as an independent company.
Concept of Venture Capital
The term Venture Capital was coined to connote the risk and adventure of a fund. A "Venture" is the processing of a course of which the outcome is uncertain and "Capital" means recourses to start an enterprise. This led to the formation of a generic name "Venture Capital".
Venture capital is normally required by firms implementing new or relatively untried technology which has been undertaken by relatively new inexperienced professionals with inadequate funds. Conventional financing is done mainly for proven technologies and established markets. But venture capital is a form of unsecured risk financing done to gain maximum possible returns from the unexplored market opportunities. The substantial capital gains in the form of return on the investment made compensate for the high risk involved in the investment. Venture capital in a broader perspective not only involves the provision of funds to a new firm but also set up of skilled workforce to operate the enterprise and design its marketing strategy to create customer awareness. Venture Capital investment is the association of the firm on a long term basis. With each stage of the company's development involving significant risk and different types of financing available for each stage of development Venture capitalists can decide on the type of investment to be made depending on the risk involved and the probable return on maturity. Investors become co-partners of the Entrepreneurs to support their project with appropriate business skills and the funding required for exploiting the market opportunities.
Features of Venture Capital
Venture Capital financing involves high risk as venture capitalist firms provide start-up capital on a long term basis to firms which are new to the market and have relatively un-established products as their offerings. The different types of risks to venture capitalist firms are as follows:-
Management risk- Inability of management teams to work together.
Market risk - Product may fail in the market.
Product risk - Product may not be commercially viable.
Operation risk - Operations may not be cost effective resulting in increased cost and decreased gross margins.
Venture Capital investments are usually made in high technology areas or in producing innovative goods through new technology because opportunities in the low technology, traditional areas tend to provide lesser returns. Venture capital is provided to enterprises who have existing business which needs to be expanded or diversified to an area involving higher risk. Thus incidentally technology financing has become the primary objective of venture capital investors.
Equity Participation & Capital Gains
Investments are made through the purchase of shares, convertible debentures, options in equity and quasi equity participation where the debt holder can convert the loan instruments into debt with warrants to equity investment or to stock of the borrower. Equity funds help to raise term loans which prove to be cheaper source of financing. Equity investment means that the investors would have to bear the risk of the venture but would earn a higher returns in the form of capital gains.
Participation In Management
Venture capital helps to monitor the financial progress and also provides additional value to the company through managerial support, monitoring and follow up assistance. Venture capitalist firms helps the company to identify key resource personnel and act as complementary to the Entrepreneurs through affecting the major decisions of the company in a positive manner. Venture capitalist firms based on the experience of the companies provide them advisory services on project planning, working capital , monitoring and financial management. Venture capital investors do not interfere in the management of the enterprise but maintain close contact with the management to protect their investment.
Length of Investment
Venture capitalist firms normally keep their investments until 3-7 years which provides sufficient time for companies to grow. Early investments may take 7-10 years to mature while investments at later stages take only a few years. In order to realize significant return on the investment made for such a long period of time requires the venture capitalist firms to exploit the opportunities available in the market so that the company can grow and earn profits within the shortest possible span of time.
Venture capitalist investments are not subject to repayment on demand. The investment may be lost if the enterprise is liquidated for unsuccessful working. It may be realized only on the enlistment of the security. Venture capitalist firms need to understand factors of illiquidity in the investment decision making process.
Venture Capital Financing
Venture capital financing can be divided into various categories depending on the time period or the stage at which the company in which the investment to be done is in. The various types of venture capital financing are:-
Seed capital is provided to entrepreneurs to prove the feasibility of the project undertaken and qualify for the start-up capital financing. Seed capital may also be provided to companies for their initial product development.
The characteristics of the seed capital are as follows:-
Unavailability of a ready product market
Incompetent management team
Product still in the Research & Development stage
Initial phase of technology transfer
Seed capital involves a high amount of risk as it is done in the earliest stage of the maturity of the company. The new ideas being implemented through the use of new technology and innovations have equal probability to succeed and fail in the market. High-tech project need a strong financial support for their commencement, adaptation and eventual success.
Seed financing provides a good opportunity to realize gains in the long term. The companies which adopt this kind of financing do not have the adequate asset base or a track record to obtain finance. It is provided at a phase when the R&D process has been initiated and the idea has reached to a stage where it would be easily accepted by the market.
Volume of Investment Activity
Venture Capitalist firms seldom make seed capital investments and the investments made in these start-up business are relatively small as compares to other forms of venture finance. The factors that contribute to the absence of interest in providing seed capital are:-
Projects require a very small amount of capital
Success or failure of a project will make very little impact on the investors portfolio
Time period of Realizations is around 7-10 years
Increased risk of product and technology obsolescence especially in sectors like IT.
Start up Capital
It is the capital required to finance the development of the final product , the initial marketing required to create an awareness about the product in the market and the establishment of the product facility. The following are the characteristics of start-up capital:-
Establishing the Company
Recruitment of skilled Employees to form the workforce
Idea generation & Formulation of the Business plan
Start-up capital is provided by venture capitalist firms when their interest lies in the people involved in the venture and the underlying market opportunity of the business. Prior to the investment Venture capitalist critically analyse the managerial ability, skills and the competence of the Entrepreneur's team . The time period of realization for start-up capital is 6-8 years and the risk of failure is comparatively lower than that of seed capital.
Volume of Investment Activity
Most venture capitalist firms avoid investing in start-ups despite their potential for providing them with spectacular return because of the high discount rate that venture capitalist firms apply to the venture proposal considering the risk involved in the investment and the maturity period. Therefore venture capitalists prefer to spread the risk by sharing the financing.
Early Stage Finance
It is usually provided to entrepreneurs who have a proven product which is ready for its launch in the market. It does not cover market expansion, acquisition and de-risking costs. Early stage financing in opted by companies who have a proven management team who has an established product in hand and has indentified the target market. This type of financing is provided to companies that have accomplished the product development phase but require funds to start the commercial manufacturing.
The characteristics of early stage finance are as follows:-
Companies experience lack of sales revenue
Negative Cash flows and profits.
Inexperienced management team consisting of technically sound and enthusiastic people
Motive to achieve spectacular growth in revenue and profits in a short span of time.
The period of realizations ranges from 4-6 years. It is usually adopted by companies who have a fully assembled management team and a marketable product.It is needed by companies to cover the initial losses of the start-up phase and also due to the project overruns on the product development.
The risk factors involved in this form of financing are :-
Provision of insufficient capital by financial institutions
Risk of product obsolescence
Second Stage Finance
The capital for second stage finance is provided to companies who are in need of funds to meet their growing working capital needs. These companies require capital inflow as the production has started but they do not have positive cash flows sufficient to take care of its growing needs.
The characteristics of a second stage finance are as follows:
Well developed product
Established management team
Generation of sales revenue from one or more products
Insufficient surplus generated to meet the growing needs of the firm.
This form of financing has a relatively shorted time to maturity ranging from 3-7 years. But the drawbacks in this form of financing include:-
Cost overruns in market development.
Inaccurate sales forecast of the new product developed.
New marketing campaigns to reposition the new products
Later Stage Finance
It is provided to enterprises that have established commercial production and a set up for new product development, market expansion and acquisitions. It is usually provided to enterprises to expand their market offerings. The characteristics of companies that adopt this form of finance are:-
Established organizational structure with a reputed position in the market.
Profitability and high capital growth, yield
Firm's business has passed the risky early stage
Companies use this form of financing for the development of improved products, for further plant expansion, obtaining additional working capital and for marketing expenses. The probability of failure in this stage of financing is low as the firms already established track record, performance data and procedures of financial control.
The time period of realization ranges from 3-5 years. Also the loan component in this form of financing provides superior return and tax benefits to the investors.
The subdivisions of later stage finance are:-
Expansion / Development Finance
Expansion / Development Finance
Venture capitalist firms provide funding for organic growth of companies and expansion through acquisitions. Companies can exponentially increase their profits through expansion in its production capacity and setting up of proper distribution systems or through acquisition of other companies. The entrepreneurs need to develop teams to handle the growth of the organization for which the real market feedback is collected to analyze the competition. The time period of realization for this kind of investment is 1-3 years. This form of investment offers higher returns in a shorter period of time with lower risks. Companies that have already achieved the break-even and have started making profits need funds to improve their production capacities, develop larger factories and enter markets with new products. These funds are provided through this form of financing.
Replacement finance enables venture capitalist firms to purchase the shares from the entrepreneurs and their associates which reduces their shareholding in unlisted companies. This form of financing involves substituting one shareholder in place of another. Venture capitalist firms can also buy ordinary shares and can convert them to preference shares with fixed dividend coupon. When the company is sold or listed on the stock exchange, these shares are converted to ordinary shares.
Buy - out / Buy - in Financing
In a Buy-out funds are provided to the current operating management to acquire or purchase a significant share holding in the business they manage where as in a management Buy-in funds provided to enable a manager or a group of managers from outside the company to buy into it. Since the venture capital firms invest in mature business, so the risk involved in this form of financing is comparatively lesser than other methods of financing. The fund obtained are used for the acquisition or re-launch of a major business division. Management buy-out is a less risky form of financing regular returns are provided to the venture capitalist who structure their investment in an optimal combination of debt and equity.
Turnaround financing is provided to well established enterprises who become sick and need funds and management assistance for revitalizing the growth of its profits. Companies at an early stage tend to have higher debt than equity and the cash flows of the company slow down because of the inability of the management team to exploit the market potential and lack of managerial skills. Venture capitalist firms carry out the recovery process within a time frame of 2-5 years. But this form of financing is avoided by venture capitalists because of a higher degree of risk involved.
Bridge financing is usually done before the planned exit. Venture capitalist firms will assist the enterprise in building a stable management team that will help the company in its IPO. This type of financing also helps in improving the valuation of the company. It has a realization period of 6 months- 1 year. The risk involved is low and the funds financed are paid back from the collection of the public issue.
Venture Capital Investment Process
Venture capital investment process is different from normal project financing. The venture capital financing follows a step wise process. The venture capital activity involves the following steps:-
1. Deal Organization
3. Evaluation or due Diligence
4. Deal Structuring
5. Post Investment Activity and Exit
Figure 2.2: Venture Capital Investment Process
Venture capitalist firms in order to create a deal flow, they create a pipeline of investment opportunities that the firm would consider for investing. The deal origination process may initiate through the following :-
Active search system
Referral systems involve deals being referred to venture capitalist firms by their parent organizations, friends, trade partners or industry associations. Active search through networks, seminars, trade fairs, conferences etc are important sources of deal flow. Intermediaries are also used by venture capitalist firms who show them investment opportunities by matching the firms with the potential entrepreneurs.
Venture Capitalist firms perform the initial screening of all their projects on the basis of certain broadly defined criteria. The screening process may categorize project in terms of technology, product or market scope. Also the stage of the financing required, geographical location and the size of the investment to be made are some the the criteria that can be considered by the firms.
This step involves all activities associated to evaluation of the investment proposal. Before evaluating the characteristics of the product, technology or market the quality of the entrepreneur is evaluated. An assessment of the possible risk and the return on the venture is done through the business plan prepared by the companies which would provide them with all the details about the proposed venture. The evaluation by the venture capitalist firms includes the following steps:-
Preliminary Evaluation:- It requires the applicant to provide a profile of the proposed venture to be eligible to the investment.
Detailed Evaluation :- It is done on the basis of the integrity, long term vision of the entrepreneur, managerial skills and the commercial orientation of the company. Evaluation is done in taking into account minor details of the venture. Also a risk analysis of the proposed projects is done which includes technological risk, market risk, product risk and entrepreneurial risk. The decision is done on the basis of the risk return trade-off
This process involves negotiation between the venture capitalist firm and the venture company to decide the price, amount and the form of investment to be done. Also an agreement is made between the two entities about the right of the venture capitalist firm to control the venture company and change the management if needed
Post Investment Activities:
After the deal structuring process and the finalization of the agreement, the venture capitalist firm plays the role of a partner and collaborator. The degree of venture capitalist's involvement in shaping the direction of the venture is dependent on the policy under the agreement. In case of a financial crisis, the venture capitalist firm may place a new management team if conditions demand.
Venture capitalist firms need high returns on their investment and want to cash-out their gains in 5-10 years. Venture capitalist direct the company towards particular exit routes. The following exit routes may be adopted by the venture:-
Initial Public Offer (IPO)
Acquisition by another company
Re-purchasing the share of the venture capitalist firm by the investee company
Third party purchase of the venture capitalist share in the company
The most popular disinvestments route in India is promoter's buy-back. This route is keeps the ownership and control of the promoter intact. However the limitation is that in a majority of cases the market value of the shares of the venture firm would have appreciated so much after some years that the promoter would not be in a financial position to buy them back.
Initial Public Offers (IPOs)
The benefits of disinvestments via the public issue route are, improved marketability and liquidity, better prospects for capital gains and widely known status of the venture as well as market control through public share participation.
The promotion of the public issue would be difficult and expensive since the first generation entrepreneurs are not known in the capital markets. Further, difficulties will be caused if the entrepreneur's business is perceived to be an unattractive investment proposition by investors. Also, the emphasis by the investors on short-term profits and dividends may tend to make the market price unattractive. Yet another difficulty in India until recently was that the Controller of Capital Issues (CCI) guidelines for determining the premium on shares took into account the book value and the cumulative average EPS till the date of the new issue.
Sale on the OTC Market
An active secondary capital market provides the necessary impetus to the success of the venture capital. Venture Capitalist Firms should be able to sell their holdings, and investors should be able to trade shares conveniently and freely. There exist well-developed OTC markets where dealers trade in shares on telephone/terminal and not on an exchange floor. This mechanism enables new, small companies which are not otherwise eligible to be listed on the stock exchange, to enlist on the OTC markets and provides liquidity to investors.
Methods of Venture Capital Financing
Venture capital financing can be done through the following ways:-
Equity:- In this form of financing venture capitalist firms limit their contribution to 49% of the total equity capital which entitles the entrepreneur to have the control and majority ownership of the company. The venture capitalist firms buy shares to eventually sell them making a capital gain.
Conditional Loan:- It is a form of financing which is repayable when the venture is able to generate sales. These loans are given on an interest free basis but a royalty is charged whose rate depends on various factors like risk, period of maturity etc.
Income note is a kind of hybrid security in which the entrepreneur has to pay both interest and royalty, but at very low rate of interests.
Venture capital financing can also be done through methods like participating debentures.
Analysis of the Venture Capital Industry in India
Venture Capital leads to the development and growth of innovative ideas into successful business ventures that exploit the unexplored business opportunities in the market.
Financial institutions like ICICI, IDBI and other state financial institutions successfully carry out the venture capital operations
Companies in the private sector are promoted through debt instruments
The need for faster development of small & medium enterprises highlighted the need for venture capital for funding development of new technologies and innovative ideas.
Technology Development and Information company promoted by ICICI & UTI started the venture capital activities in the country in 1988.
Some of the projects financed by the TDICI are discussed below.
MASTEK is a software firm in which TDICI invested Rs. 42 lakh in equity. The firm had an annual growth of 70-80 % in the turnover and went public 3 years after the investment was made.
TEMPTATION FOODS is an exporter of frozen vegetables and fruits in which TDICI invested 50 lakh in its equity.
RISHABH INSTRUMENTS which manufactures meters used in power stations received an investment of 40 lakh from TDICI. The company showed an increase by 70% in its turnover after the venture capital investment.
SYNERGY ART FOUNDATION runs art galleries received an investment of 25 lakhs as convertible loans and converted it into equity after its establishment in the market.
Venture Capital firms can increase their investments in more innovative companies and high-tech organizations which implement advanced technology to provide solutions to consumers in the market.
Sick unit can be rehabilitated through people with innovative ideas and effective managerial skills.
Venture capitalist firms can plan & direct activities taking place in their parent companies.
Investments in developing countries should be ramped-up as there is a vast potential for ideas to be successful and exploit the opportunities available in the market for making profits.
The service sector comprising of industries like tourism, healthcare, publishing, technical institutes etc should be encouraged to start their own venture which would bring an entrepreneurial spirit among the personnel.
Venture capitalist firms should provide marketing & managerial expertise which will increase the effectiveness of the less mature firms in the market.
Venture Capitalist firms must act as business incubators and should increasingly provide syndicated financing to reduce the risk involved in the investment.