Table of contentsAccounting standardsLegal requirementsFinancial statementsCategorization of venture capital financing The formation stage. later mezzanine stage financing, growth capital, distressed investment. mergers and acquisitions / sale and acquisitionsFinancingFeaturesIlliquidityBibliographyVenture capital is the business of providing capital, advice, networks and support to companies and entrepreneurs who have high growth potential and who are trying their hand. It has existed in various forms for centuries or more. It finances small startups to companies that want to grow but cannot yet access financing due to strict share market regulations. The feedback is incredibly rewarding and fantastic. Even more rewarding is the personal pleasure of seeing great people who believe in creating great new companies and products for the world. But there are always two sides of the coin. Startups and venture-backed companies have an incredibly high failure rate due to various variables creating market uncertainties that cannot be undone or are not within their control. Most importantly, they provide unsecured loans. It is said that out of 10 companies funded by venture capitalists, 7 companies or ideas fail badly, out of the remaining three, two break even and the remaining idea creates a huge return that exceeds and covers all losses. and on top of that, generate tons of profits. The companies that venture capital invests in are called portfolio companies. Say no to plagiarism. Get a tailor-made essay on “Why Violent Video Games Should Not Be Banned”? Get an original essay Each fund has its own fund manager. When venture funds invest in these funds. In exchange for funding, provided they request a stake in the company's capital, they have access to a seat on the board of directors of the startup or company concerned, sometimes they also play an active role in the management of company operations. They provide financial assistance, using their expertise and resources available to them. The first venture capital firms were established in America in the early to mid-1900s. Frenchman Doriot Georges moved to the United States to obtain a business degree. He became an instructor at Harvard Business School and began working at an investment bank. He founded the first public venture capital company named American Research and Development Corporation (ARDC). The ARDC was notable because for the first time, a startup or business could raise money from private sources other than wealthy families. it was families such as the Rockefellers or the Vanderbilts who provided money to businesses and startups and provided capital for expansion. The ARDC had millions in its account from educational institutions and insurers. Accounting Standards Accounting for venture capital funds can also be affected by the degree of control the fund has over an entity. For example, under UK generally accepted accounting principles (GAAP), equity accounting is required if the investment gives the fund an influential minority stake (20-50%) in the company and is not owned as part of a larger portfolio, while US GAAP does not require equity accounting of influential minority positions. On the other hand, International StandardsFinancial Reporting Standards (IFRS) require the equity accounting of influential minority positions when they are not fairly valued through an income statement. Legal requirements Venture funds form a limited partnership and various limited liability companies to receive tax benefits. , high net worth individuals, institutional buyers, insurance companies, pension funds, investment banks, dedicated risk funds, corporate pensions. Business owners and entrepreneurs who cannot get a loan from the bank due to their high uncertainty but have quality ideas are usually supported by these funds. All partners have partial ownership of the fund, but it is the venture capital fund and its manager who decide the day-to-day running of the business and where to invest the fund. The venture capital firm acts as the general partner while all others act as limited partners. The fund itself is typically structured as a limited partnership, which engages the LLC as the GP. Financial Statements The financial statement prepared for stakeholders varies accordingly depending on the accounting standard. Venture capital funds have the same accounting as private equity funds. In America, they are prepared according to generally accepted accounting principles (US GAAP). Since most funds are based in the United States, they must follow the AICPA (AMERICAN INSTITUE OF CERTIFIED PUBLIC ACCOUNTANTS AUDIT AND ACCOUNTING GUIDE). It includes cash flow, profit and loss and balance sheet, investment timeline and other financial highlights lists. If the venture capital fund is based outside of the United States, then it must report its information in accordance with International Financial Reporting Standards (IFRS). In which they must submit a profit and loss statement, a statement of assets and liabilities, a statement of operations, a statement of cash flows and salient notes as well as a statement of changes in net assets. As a result, experienced traditional venture capital firms have had to keep pace, and many have raised larger follow-on funds – and at a faster pace – to support growing startups, where unicorns and mega- transactions have a significant impact. California, Massachusetts and New York have the largest venture capital deals. They contribute to 79% of transactions in America. For managers, a remuneration fee of 2% of the total amount of the venture capital fund must be paid annually. On top of that, they receive around 20% of the profits which go to the general partner while the remaining profits are divided among the limited partners based on their share of ownership. Categorization of venture capital financing The formation phase refers to investments made in a project in the earliest period and includes three distinct stages: Angel investment: it refers to investments made very early in the life of a company . Often, the idea phase and funds are used to develop business plans and assess market potential. The source of funding can be individuals as well as managed funds. The seed stage: This refers to investments made for product development, marketing and market research. This is the stage during which venture capital funds make the first investments, through ordinary or convertible preferred shares. Early stage: refers to an investment made to finance initial commercial production and sales. later stage investment refers to a stage of