Question

What is the strategic role of venture capital in developing entrepreneurship in a country like Saudi Arabia(or any country in general)?

Answer 1

Venture capital develops entrepreneurship by providing risk capital. Firms in new sectors and new businesses usually do not have sufficient cash flows to fund growth. Banks are unwilling to lend to them because of their short operating history and uncertainty of cash flows. These firms are too small and not mature enough to approach the public for investments through an IPO. Venture capital fills this gap by providing capital in exchange for an equity stake.

Venture capital thereby promotes entrepreneurship by investing in businesses which have potential for disruption and growth, but cannot raise capital elsewhere. They assume high risk by investing in early stage businesses. They also provide the investee firms with mentorship and networking to accelerate their growth. Thus, they not only provide capital, but also guidance and support to the firms they invest in.