The Alter-NATIVE series How venture capital and private equity funds boost economic growth

How venture capital and private equity funds boost economic growth

Let us understand how and where alternative investment funds deploy their corpus.
Edelweiss Feature Jul 25, 2017

Smooth flow of capital forms the backbone of a healthy economy. As capital finds its way into the various nooks and crannies of the economy, we see an explosion of ideas, products and services that are geared towards adding value to our lives and contributing to economic growth.

As per a SEBI report, in India, a meagre 10-15% of equity capital required by start-ups, medium enterprises and large companies is funded from domestic sources. The remaining 85 to 90% is sourced from overseas which is starkly in contrast to the U.S. and China where domestic sources fund 90% and 50% respectively, of the venture capital and private equity needs of enterprises. Due to the high risk-high reward nature of such enterprises, access to traditional sources of funding, such as from banks and non-bank financial companies, is restricted. These institutions are usually constrained by risk-aversion, which limits their ability to supply risk capital.

This is where Alternate Investment Funds play a vital role in providing a conduit for capital flow. These funds are well-suited to assuming the risks and rewards of venture capital and private equity at all stages of the entrepreneurial life-cycle and are in a position to make the necessary capital available to them. AIFs help in unlocking sources of funds and making them available to ventures that could benefit from these funds. They basically help in channelizing capital from areas of excess to areas of need, thus acting as enablers of economic growth. Through this channelling, AIFs also provide investors with an opportunity to diversify their portfolio and potentially earn higher returns. In this way, potentially great ideas which exhibit the ability to contribute to economic growth, get funded through Alternative Investment Funds.

Past performance is not an indication of future performance. Investments in the securities market are subject to market risk.

Please read the Private Placement Memorandum carefully before investing.


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