1. Definition
Venture Capital (VC) is a form of private equity financing that investors provide to startups or small businesses that have high growth potential but also high risk.
It helps new and innovative companies (especially in technology, space, biotech, etc.) get the early funding they need to develop their products, expand operations, and enter markets.
2. Key Features
| Feature | Explanation |
|---|---|
| Type of Investment | Equity (ownership) – investors take a share in the company. |
| Stage of Funding | Usually early-stage or growth-stage startups. |
| Risk Level | High – because startups may fail, but returns can be huge if they succeed. |
| Investor Involvement | Venture capitalists often mentor, guide, and help in management decisions. |
| Time Horizon | Medium to long term (5–10 years). |
3. Who Provides Venture Capital?
Venture Capital Firms (specialised investment firms).
Government-backed funds (like SIDBI Venture Capital Limited).
Corporate Venture Funds (large companies investing in startups).
High Net-worth Individuals (HNIs) or Angel Investors sometimes invest early and are later joined by VCs.
4. Purpose of Venture Capital
To support innovation and entrepreneurship.
To fund startups that traditional banks consider too risky for loans.
To develop new industries (like space tech, clean energy, AI, biotechnology).
To generate high returns through ownership in successful companies.
5. Process of Venture Capital Funding
Startup Proposal – A company presents a business plan.
Screening & Evaluation – VC firm assesses potential.
Due Diligence – Detailed review of business, market, and technology.
Investment Agreement – VC invests in exchange for equity (ownership stake).
Mentorship & Monitoring – VCs guide the startup toward profitability.
Exit Strategy – VCs recover and profit through:
IPO (Initial Public Offering)
Sale to another company (merger/acquisition)
6. Advantages
Encourages innovation and entrepreneurship.
Provides expert guidance and mentorship.
Helps build high-tech, job-creating industries.
Attracts foreign and domestic investment into emerging sectors.
7. Challenges
High risk of failure (many startups don’t survive).
Limited availability for small towns or non-tech sectors.
Exit uncertainties if stock markets are not favourable.
8 Example (India Context)
The ₹1,000 crore IN-SPACe–SIDBI Venture Capital Fund aims to:
Provide early-stage funding to space startups.
Help companies build satellites, launch vehicles, and space data services.
Promote self-reliance in space technology under Atmanirbhar Bharat
The Indian National Space Promotion and Authorisation Centre (IN-SPACe) and the Small Industries Development Bank of India (SIDBI) have jointly launched a ₹1,000-crore Venture Capital Fund.
Objective: To strengthen India’s private space sector, support startups, and boost innovation in the rapidly expanding space economy.
This marks a major step toward realising India’s vision of an “Atmanirbhar” (self-reliant) and inclusive space ecosystem.
Background and Policy Context
India’s space sector has been liberalised in recent years to enable greater private participation.
Establishment of IN-SPACe (2020) under the Department of Space (DoS) was a landmark reform, aimed at facilitating private entities to engage in activities previously dominated by ISRO.
The Union Cabinet (October 2024) approved this fund to provide structured financial support to space startups and SMEs, in alignment with the National Space Policy 2023 and Atmanirbhar Bharat Mission.
