Venture Capital and Entrepreneurship

Abstract

Entrepreneurship plays an important role in accelerating economic growth and in the long-term economic development of a country. It promotes capital formation, wealth creation and employment generation leading to reduction in poverty and unemployment. Several studies have emphasised that there exists a strong association between a country’s level of entrepreneurial activity and its economic growth rate (Wennekers and Thurik 1999). In fact, the under development is due to inadequate supply of entrepreneurs and is not because of the lack of natural resources. According to Schumpeter “The entrepreneurship is essentially a creative activity, or it is an innovative function”. His theory of innovation, development implies carrying one of new combinations of entrepreneurship. Traditionally, Jean-Baptiste Say is acknowledged for coining the term ‘entrepreneur’ and developing it further. In the early 18th century, Richard Cantillon introduced the term ‘entrepreneur’ and unique risk-bearing function in economics. In economic theory, an entrepreneur is innovator and source of creative destruction (Schumpeter, 1934), as coordinator of production (Lucas, 1978) and as risk bearer (Kihlstrom and Laffont 1979), Entrepreneurship is imperative for a dynamic economy as entrepreneurs are the engines of job creation and economic growth. Entrepreneurs boost the economic growth by introducing innovative products, services, methods, production, technologies and processes which enhances the productivity of the enterprise and increased competition in the market. In US, entrepreneurship has played a vital role by creation of new enterprises and complete makeover of existing enterprises with innovative ideas and use of modern technology. Entrepreneurship has been builtin the Indian prodigy and tradition. Renowned economist Prof. T.N. Srinivasan, Yale University has said that, “India has been an entrepreneurial society…we had the entrepreneurial skill but suppressed it for too long a time… and now it is thriving.” In the pre-liberalisation period, the policies were inward looking and geared towards the accomplishment of self-reliance. Entrepreneurship was subdued, and availability of capital was limited. In fact, the Indian populace has entrepreneurial competence however, the society was risk averse and majority of individual’s preference was for secure and long-term employment, such as government jobs followed by public sector and reputed private companies. In the post-liberalisation-period, the level of entrepreneurship has increased substantially with rise in entrepreneurial activity as liberalisation has brought down the entry barriers for new firms and it kick-started the growth of entrepreneurship. Since mid-1990s, the knowledge-intensive entrepreneurship in sectors such as IT, telecom and biotechnology has increased significantly. In the last two decades, the average number of companies formed per year has improved substantially