Explain various characteristics of Venture Capital Financing.

Following are major characteristics of Venture Capital Financing: (i) Long time horizon: The fund would invest with a long-term horizon in mind. Minimum period of investment would be 3 years and maximum period can be 10 years. (ii) Lack of liquidity: When VC invests, it takes into account the liquidity factor. It assumes that there would be less liquidity on the equity it gets and accordingly it would be investing in that format. They add an illiquidity premium in the price and required return. (iii) High Risk: VC would not hesitate to take risk. It works on principle of high risk and high return. So, high risk would not eliminate the investment choice for a venture capital. (iv) Equity Participation: Most of the time, VC would be investing in the form of equity of a company. This would help the VC participate in the management and help the company grow. Besides, a lot of board decisions can be supervised by the VC if they participate in the equity of a company and have a Board seat.