The paper reviews development of Venture Capital Funds (VCFs) and Venture Capital Investment (VCI) in the country. Concept, evolution, characteristics and scope of venture capital as an equity mechanism is discussed in the paper. This is also referred to as Private Equity (PE)-an investment in a company with equity securities that are generally not publicly traded. Private Equity focuses on active private equity investments that enable them to acquire a large or controlling interest in a firm with solid growth potential. As a result, PE firms can oversee, assist, and if necessary, redirect the company's activities or its management. Indian environment of venture capital funds, particularly through institutional sources like Industrial Development Bank of India (IDBI) and Small Industries Development Bank of India (SIDBI) is presented in detail. To make the program dynamic to meet the needs of entrepreneurial interests in the small and medium enterprises sector, changes taking place are covered to some extent. Role of the nodal agency and Securities and Exchange Board of India (SEBI) in supervising and monitoring the functioning of venture capital funds is highlighted. Involvement of the Indian Venture Capital Association (IVCA) in pursuing with the Government of India for revision of guidelines for Venture Capital Funds for different periods is recapitulated.

Venture Capital is defined as "an equity by which an investor supports an entrepreneur with finance and business skills to exploit market opportunities; thus obtain long-term market gains." Venture capital is primarily for new entrepreneurial ventures, which involve high risk, but at the same time promise high rewards. Commercialization of new technologies developed indigenously, is one of the directions supported by venture capital. Venture capital is available in the form of equity and equity-related instruments. The institutions/investors providing venture capital assistance get themselves deeply involved in the venture by providing necessary managerial and marketing support, and networking opportunities till the venture reaches the take off stage of becoming successful. Venture capitalist combines risk capital with entrepreneurial management and advance technology to create new products, new companies and new wealth. Risk finance and venture capital environment can bring about innovation, promote technology and harness knowledge-based ventures. In this sense, venture capital is different from other types of financing such as: (a) development finance; (b) seed capital; (c) term loan/conventional financing; (d) passive equity investment support; and (e) R&D funding sources. Venture capital is a source of investment in the form of seed capital in unproven areas, products or startup situations. The concept of venture capital is relatively new to the Indian economy, and is gaining prominence in the recent years.