Venture Capital (VC) financing started in India in 1988 with the formation of Technology Development and Information Company of India Ltd. (TDICI) - promoted by ICICI and UTI. The first private VC fund was sponsored by Credit Capital Finance Corporation (CFC) and promoted by Bank of India, Asian Development Bank and the Commonwealth Development Corporation viz. Credit Capital Venture Fund. At the same time Gujarat Venture Finance Ltd. and APIDC Venture Capital Ltd. were started by state level financial institutions.

Venture capitalists take higher risks by investing in an early-stage company with little or no history, and they expect a higher return for their high-risk equity investment. Internationally, VCs look at an Internal Rate of Return (IRR) of 40% plus . However, in India the ideal benchmark is in the region of an Internal Rate of Return (IRR) of 25% for general funds and more than 30% for IT-specific funds. Most firms require large portions of equity in exchange for start-up financing

VC financing differs from the conventional bank financing in the following ways:

• VC financing invests in equity of the company while conventional financing generally extends term loans
• Conventional financing looks to current income i.e. dividend and interest, while in VC financing returns are by way of capital appreciation
• Assessment in conventional financing is conservative i.e. lower the risk, higher the chances of getting loan. But, VC financing is a risk taking finance where potential returns outweigh risk factors.
• VCs are in for long run and rarely exit before 3 years while a bank will fund a project as long as it is sure that enough cash flow will be generated to repay the loans.

In addition, Venture Capitalists lend management support and provide entrepreneurs with many other facilities. They even participate in the management process. VC generally invests in unlisted companies and make profit only after the company obtains listing. VC extends need based support in a number of stages of investments unlike single round financing by conventional financiers.

VCs carry out very detailed due diligence and make 2-7 year investments. The VCs also hand-hold and nurture the companies they invest in besides helping them reach IPO stage when valuations are favourable. VCFs help entrepreneurs at four stages viz., idea generation, start-up, ramp-up and finally in the exit.

Generally a Venture Capitalist looks at the following aspects before investing in any venture.

i) A strong management team - each member of the team must have adequate level of skills, commitment and motivation that creates a balance between members in areas such as marketing, finance, and operations, research & development, general management, personnel management, and legal and tax issues.

ii) A viable idea - establish the market for the product or service, why customers will purchase the product, who the ultimate users are , who the competition is, and the projected growth of the industry.

iii) Business plan: the plan should concisely describe the nature of the business, the qualifications of the members of the management team, how well the business has performed, and business projections and forecasts.

So while approaching a venture fund one needs to be fully prepared and keep the above requirements in mind while submitting the business plan.