Venture Capital funding, better known as VC funding, is a financing option used by startups to raise capital from investors in exchange for an equity share in the company. Equity shares can be provided either as direct equity shares or convertibles, which may convert to equity at a later date. VC firms also provide expertise, mentoring, market guidance and other assistance to its portfolio companies. As per data available, Indian VC funds have invested a total of $31bn in startups since 2015. Typically, a VC firm would raise capital from its limited partners (LPs) and, in some cases, from general partners (GPs) as well. LPs are investors in the fund and would put in the capital to be managed by the GPs and would be generally passive investors. LPs can be pension funds, fund of funds, family offices, corporates, etc. GPs are the partners who manage the fund and may also invest in some cases. VCs are early-stage investors and would typically invest from pre-seed stage to Series A, B or C. The cheque sizes of various VCs may vary depending on the size of the fund and the fund philosophy, though they would be providing smaller cheques as they are generally the initial investors in a company. A VC would in most cases invest for a period of 5-7 years depending on the stage of the company and the opportunity available. They would exit the company either through a secondary sale of its shares to another investor, IPO or an acquisition of the company. Raising finance from VC funds does provide a startup a lot of benefits such as availability of capital for growth, mentorship, strategic planning, assistance in collaborations and tie-ups, setting up a professional team, building credibility, etc. However, raising funds from VC funds also comes with its own share of risks such as dilution of control, too much time of founders in the process, over dilution due to non-achievement of certain targets, leakage of confidential information during the fund raise process, etc.

A VC would generally review a startup, have multiple calls with the founders and the
management, understand the business in detail and if found suitable for the mandate of the fund, they will issue a term-sheet. Post acceptance of a term-sheet, they would conduct a
due diligence to be undertaken by a third party or multiple third parties. Due diligence may cover aspects like, financial, legal, technical, ESG, customer and supplier validation, market feedback, etc. Post a satisfactory due diligence, the Shareholders’ Agreement and Share Subscription Agreement is drafted, negotiated, finalised and then executed. Once all legal formalities and paperwork is in place, a VC firm would transfer the money to the company account, thereby subscribing to the shares of the company.

The overall process for raising funds through VC funds, can take anywhere between 3-6 months. However, there are exceptions sometimes wherein the funds have been raised much faster or taken much longer as well.

Redbrick Capital Advisors is India’s leading investment bank with expertise in private equity, mergers and acquisitions, and debt syndication, with an exclusive focus on startups and SMEs, across all sectors and industries. If you are looking for VC funding, we have robust relations
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