Venture capital is a type of equity investment, normally focused by developing organizations that require huge capital to run operations and to get success. Venture capital is more difficult for small business as compared to other sources of financing. Before giving venture capital to small business, venture capital associations require a formal proposal and perform a rigorous assessment (Gale, 2007). Venture capital or equity finance is normally associated with organizations which have great potential for development. However, these organizations have high associated risks.  Such organizations might be at an early stage of development and need a cash flow stream and security to get debt finance. Venture capitalists give finance to the business concerns to get equity share (Rowlands, 2009). This report is a consultancy report, which analyzes the advantages and disadvantages of venture capital. It also analyzes the risks associated with investment for venture capitalists. It sheds light on the most feasible alternative that could be adopted, other than venture capital funding. At the end, it concludes by recommending the appropriate source of funding for MTT.

1.Venture Capital for MTT

There are two main types of finance, known as venture capital and debt finance. Venture capital is a type of equity financing while debt finance includes borrowing money without giving up share in the ownership. Policy makers are of the view that if the firms are not given finance for development then it can lead towards business sector failure. On the demand side, it has been found that organizations do not have the ability to find suitable money backed finance. On the supply side, it has been found that the financers provide finance to those companies  that have a potential to utilize it effectively (Roper, 2011). This indicates that the importance of funding is crucial for every business and it should not be neglected by the management. Venture capital proves to be a very effective source of finance for the business like MTT. Particularly in early stage of development, businesses go for equity finance rather than debt finance. Kortum and Lerner (2000) reported that, finance in forms of venture capital and debt is highly important for the economy because such type of investments are highly effective in creating innovation and enhancing the profitability of companies. In addition, investment made in small firms are more fruitful as compared with investment made in the larger firms.

2.Advantages and Disadvantages of approaching the Venture Capital Firm

Some advantages and disadvantages which should be considered by management of Midas Touch Technology Ltd to approach Victoria Capital Investment Ltd are discussed in this section. Private equity can be gained by the firm in large proportions. Obtaining huge amount of finance is one of the most important advantages of venture capital (Pierrakis, 2012). The investors or lenders have low interest in business operations and resist providing funds. With the help of Private equity, the financier can actively participate in the business and helps it to reevaluate different aspects of the business to maximize its value (Gompers and Lerner 2001). Private equity firms have numerous associated benefits. If company borrows money then it has to pay additional amount of money called interest. On the other hand, private investment does not involve interest cost. Moreover, individual partners in the private equity firm often invest their personal savings for making its performance better and to earn huge profits (Murray, 2007). Moreover, the combination of huge equity funds, expertise and inducement can be very significant. Green (2003) reported that dealing with the equity investment providers resulted in 20% increase in company’s annual profits and growth rate of 50% per year was observed. This indicates, MTT can get different benefits out of venture capital. 

The division of ownership is the one of the major disadvantage of venture capital. in other funding options, ownership remains same. But, in case of venture capital, the ownership also changes. By focusing on private equity, a firm or individual can obtain huge amount of money, but commonly have to give a large share of the business. Private equity firms frequently demand majority of shares and get ownership, this is a big loss for the business (Bessant and Tidd, 2007). Due to loss of ownership, a firm loses the managerial control of the business. In venture capital funding, the private equity firm gets involved actively in the business, which is a good element. On the other hand, loss of control in business operations including strategy making process, hiring and firing employees and choosing management team. A company becomes bound to take decision by considering the opinion and suggestion of private equity firm as well (Mulcahy, Weeks and Bradley, 2012).

Furthermore, the investment of private equity firms in the companies makes the companies valuable. The investment of Victoria Capital Investment will benefit Midas Touch Technology. Commonly, it is better for companies to involve any other business to create value, but the definition of value for a private equity firm is specified. Firstly, it focuses on the increment in the financial value of the business but after sometime, relationships among employees, conflicts and lack of interest lead towards failure (Honohan, 2010).

3.Risks for venture capital firm associated with investing in MTT

There are certain risks which venture capital firm must consider before investing in any company like MTT. As the Venture capital investment dependably incorporates various positive components but there are various associated risks with them. The risk of high contribution expenses are especially stimulating. In some cases, the venture may require an excessive amount of time for giving finance. In other cases, firms require participating and contributing in business. This means that the venture capital will get an executive position in the organization. This indicates that, venture capital routinely keep a check and balance on the company. According to Kaplan and Stromberg (2000), companies focusing on venture capital would prefer to get a share in management rather than in day to day or routine activities, hence it must be considered.

Before investing in MTT, there are various other risks which are important. The importance of market timing cannot be neglected. It needs to be analyzed that is the market timing is appropriate or not. The risk associated with business model should also be considered by this venture capitalist firm. The assumptions which are assumed by management for achieving profitability must also be evaluated. The risk associated with strong competitors should also be considered. The market size risk is also important for this venture capitalist firm. It must has to consider whether or not there is appropriate exit scenario (Gompers and Lerner, 2004).

Another risk is related with valuation of capital. Kaplan and Stromberg (2000) depicted that measuring income rights is not an easy process. Different income rights provided to managers and administration are unforeseen due to consequent execution or stay in the firm. It is highly recommended for the business concerns to measure the venture capital investment payment, unforeseen or planned in any size. It is useful for a venture capital to make financial duties dependent upon the organization. This reduces the amount of assets that the venture capital requires. With the help of venture capital, business can produce and sell large number of products.

Along with this, the skills and passions of the management team must has to be evaluated. The execuation team must have right skills and passion to complement the funds, otherwise venture capitalists should opt for other firms for investment. The risk associated with the new technology must need to be considered. It is important to analyze whether or not MTT is able to bear up the venture management risk and it must be enough receptive to feedback. Otherwise, venture capitalist firm should not invest. The financial risk must be assessed and it must be manageable. Moreover, it should be ensured that before making final decision whether or not the legal risk is minimum (Gompers, 1996).

The two primary risk elements related with venture capital to organize the forecast responsibility are business sector size and administration risk (Kaplan and Stromberg, 2000). There are two vital systems to overcome conflict of interest between the business and the venture capital, specifically control and implementation authority. Management should focus on a process to overcome conflicting situations. At the end, when the specialists' activities are measurable yet not indisputable, conflicting situations can be overcome by designating controlling power to the manager. It additionally demonstrates that it is important to give authority and control to the managers to handle the bad conditions. It is stated that high risk is involved venture capital authority rights (Aghion and Bolton, 1992)

4.Alternative Approach for MTT – Assimilation Funding

The idea of assimilation funds is related with venture capital funding. Rather than focusing on single organization and its administration, the method permits financial specialists to purchase key building pieces from the start. Assimilation funding can be used by the business for new start-ups. This does not only enhance risk, it allows cooperative energies that might accelerate benefits for both of the organizations. On the other hand, complete disappointment of a business or an unforeseen advantage might accomplish be received by company, which is not possible in conventional funding venture. It can be understood that the portfolio contains a few unambiguous resources, despite the startup value. Their worth might diminish, yet it is not possible that it will go to zero. On the other hand, when one resource is lost, it might kick the other also (Stagars, 2014).The distribution of investment over purposefully connected resources can be done at the start, quickly. Rather than attempting to recognize the next big advantage, an assimilation system acknowledges benefits from the whole store network over the more extended term. This movement in the business serves as an extra channel for assessing portfolio resources. The master plan turns out to be more critical. Generally, as funding firm’s bound their wagers with interests in a few new companies, assimilation funds spread their capital crosswise over more than one center organization. On the other hand, the investment firm carefully chooses its portfolio to attain vital goals. While choosing assumptions, the asset principal must search the mutual resources (Cumming, 2007).

Regarding portfolio organizations, assimilation funds have a less value as compared with Venture Capital funds. They take after a strong speculative proposition and buy shares in collaborations with new companies, normally newly settled organizations. The advantage achieves through this are convertible obligation, personal value speculation, shares traded on an open market value. Cash and financing cost are additionally incorporated into assimilation funds. This combination of advantage turns risky investment into a less risky one. Compared with venture capital, assimilation funds are helpful when investor organizations lose from ordinary shares(Stagars, 2014). Like venture funds, assimilation funds permit venture capital firms to allot capital from outsiders. In any case, these funds put some extra limitations on the speculation and traditional venture business people may not be familiar with every one of these components (Stagars, 2014).

Venture capital firms must focus on the assimilation approach to get the full benefit of the assimilation methodology. It is vital that interested venture capital firms familiarize themselves with the details of these monetary instruments and comprehend their suggestions. Specifically, distinguishing integral worth chain resources may not be similar with normal venture capital firms, instantly. Since assimilation assets are combines finances and not normal venture investment, therefore the asset manager has to play double part. On one hand, manager is in charge of incorporating the venture capital benefits in the portfolio. Moreover, it should likewise regulate the valued resources and other budgetary instruments in the portfolio. for example, private value shares in supply collaborators, traded on an open market value are useful in supporting instruments (Tether and Stigliani, 2012).

Instead of venture capital, assimilation funds incorporate few other resources. For instance, a theoretical assimilation asset of US$200 million with the topic "practical transport” might comprise of the accompanying ventures and resources. Portfolio investment to raise capital over around twenty interests in various resources diminishes the danger. The insurance of the hard resources in the quality chain serves as a top on the drawback. In the meantime, when the venture allotments outflank, their prosperity might strengthen the system and make the valuable chain organizations more significant. Their key possession might position the new companies more unequivocally in the business sector. Then again, when system impacts boot in, financial specialists might wish to acknowledge capital gains (Cumming, 2007).

According to Stagars (2014), a venture capital firm must have few assimilation funds to expand its advantages under administration and take advantage from bigger scale in its operations. To do that, it will need to coordinate new abilities into its operations to deal with the funds, follow regulations, and consistently answer to financial specialists. A bolster structure and more grounded saving money, connections will be pivotal to draw in a stronger financial specialist base and accomplish scale. Generally, as other venture funds, assimilation funds are addressed in an assigned asset purview.

Sincem assimilation funds are not pure venture capital funds, their profits have diverse qualities from ordinary venture capital funds. As indicated by portfolio creation, storage administrators need to discover sufficient benchmarks against which they look at their execution. Similarly, it is essential when financial specialists and their counselors assess assimilation funds against different speculations. At the point, when speculations have a long execution history and exchange on open trades, information is regularly unreservedly accessible. On account of startup speculations and dubious venture propositions, finance administrators must develop a theoretical portfolio and compute model execution. They ought to back-test this portfolio over a specific time skyline, maybe three to five years, and undertake returns into the future with few situations. Obviously, authorized financial specialists realize that model execution does not guarantee real execution (Harvie and Lee, 2005).

Assimilation funds offer numerous favorable circumstances for financial specialists, venture organizations, family, workplaces, establishments, and resource proprietors. The fundamental advantage for Midas Touch Technology lies in the big pool of benefits they oversee. This might give them access to greater arrangements, which brings about bigger incomes from administration and execution charges. Assimilation funds are more perplexing to oversee than traditional venture funds. Financial specialists benefit from a mixed introduction to venture-style returns. As venture capital is still the predominant resource class in assimilation funds, this might satisfy their distribution necessities with less drawback hazard and a more grounded topical speculation postulation. Assimilation funds are the new alterantive for all companies and individual businessmen. In view of their more intricate structure, financial specialists ought to acclimate themselves altogether with the danger return attributes of this alternative. At the point, when venture capital firms present these monetary items, they might discover them correlative to customary venture capital. Notwithstanding, it is conceivable that another type of venture firms will develop that uses organized fund all the more daringly. This might reevaluate the customary plan of action and make venture capital more acceptable for a bigger financial specialist base (Stagars, 2014).

5.Conclusion

After a thorough study it is concluded that the Midas Touch Technology should approach the venture capital firm for funding. Although, there are some demerits of it, but at the same time it has many benefits. As discussed in the previous section there are numerous benefits of venture capital firm. The company can take capital gains and can earn more profits, by approaching the venture capital firm. So it is suggested that the Midas Touch Technology should deal with the Victoria Capital Investment Ltd for future. Though, the alternative of assimilation funding is attractive, as well, but it is more complicated hence it might be more difficult for MTT to access it. Hence, the recommended source of funding is venture capital. The rationale for recommending venture capital firm is that it provides access to larger investor group. It requires more assets under management and it provides the high profile to the company. On the other hand, assimilation fund is not pur venture capital expsosure and there is a boundary for entry and it requires higher investment minimums, this makes it less attractive than venture capital funds.

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