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CERTIFIED MANAGEMENT ACCOUNTANT 43

pandemic has created a financial however this has been postponed for liquidation. The entire global value
distance between SMEs and investors, an indefinite period due to the lack of chains have been challenged by the
and the seed capital for SMEs have investors in the financial market. pandemic. The VC investment can
also been affected due to uncertainty. create more opportunities in relation
The result of the study can be useful SME focused funds and accelerators will to technology, transfer know-how,
to provide significant implications and experience performance deterioration innovation, digitization, and increase
insights into the venture capital and the and harder fundraising (Strusani, Verma operational capabilities into SME
SMEs from the COVID-19 perspective. , & Manent, 2020). The VC investors are investment. More debate on the impact
Finally, a future study will explore to from families or of people with high net of COVID-19 has thus far centered on
develop a resiliency model to venture and less institutionalized investors. The existing SMEs (Bartik et al., 2020). This
capital for SMEs. growth of SMEs has been affected in article examines how COVID-19 has
short and medium terms due to a decline impacted VC in SMEs.
Keywords: COVID-19, Small and in revenue and profitability. Most SMEs
medium-sized enterprises, and Venture do not have to service debt and increase The following way of VC works in the
capital. borrowing cost, adding to the high-risk corporate world (Figure:1).
aversion that will lead to defaults and

1. Introduction
How the Venture Capital Industry Works?
Venture Capital (VC) has made great
progress globally where SMEs are The venture capital industry has four main players : entrepreneurs who need funding, investors who
desperately looking for finance to want high returns, investment bankers who need companies to sell, and the venture capitalists who
launch the business. The small and make money for themselves by making a market for the other three.
medium business is the backbone of any $ $
Venture
economy in the world, thus the increase Entrepreneurs capitalists Investment
bankers
in VC investment is the most welcoming Ideas IPO
sign for the business community.
Currently, Venture Capitalists (VCs) look $ $ $ $ Stocks
more like financial institutions, but
they’re using investment knowledge
and operational know-how as capital. Corporation Pravate Public markets
and
and
In this context, VC is not a long-term government Capitalists corporations
investment, but the idea of investing
in a particular entity to expand the Sources : Bob Zider, How Venture Capital Works? HBR, 1998
business, and once the business reaches
a matured stage, it can continue to exist Figure:1 How the Venture Capital works in the financial market
with the help from investing in financial
institutions. COVID-19 has created a
financial distance between SMEs and 2. Literature View
investors. The startup or seed capital The VC has declined due to COVID-19. signs of recovery, though risks still
for SMEs has also been affected due VCs are working on extra time to remain significant (Blee, 2020). Ulrike
to uncertainty. Global Pandemic has monitor and evaluate the existing Hinrichs (2020) stated that the demand
impacted a decrease of 60% of the total portfolio (Jones, 2020). In this for venture capital should not drop
volume of investment raised between context, VCs have been involved in the noticeably because of the pandemic. The
the first quarter in 2019 and the first business operations to reduce costs, pandemic has created more business
quarter in 2020 (Brown & Rocha, 2020). focus on cash, redesign the business opportunities for technology innovation
Overall, VCs has to monitor the business model, and raise additional funding so that VC can finance to start up new
environment and be more proactive toward financing the working capital business. The challenge will always be
in strategic planning for managing requirements. The investor’s portfolio in the business environment to start
the uncertainty of the business. The in the VC has been deteriorating up new business venture. Venture
innovation of young companies dramatically. The stock market is also capital investments are more toward
depends on the continuous inflow of halted by the COVID-19, and the market the new idea generation and innovation
venture capital, but it has been halted by has faced tough times, so the company businesses (Schweickhardt, 2020).
the COVID-19. The international venture cannot issue the initial public offer (IPO)
capital market has been completely to the public to raise additional funding Technology companies are more
locked down. Each country is keen to for the business. resilient businesses, however, there
develop its own self-sufficient economy is a high risk involved. VC has become
since the borders are closed. SMEs are The business activities are entering a a scarce resource in the present
idealistic businesses to be started, recession and there are more possible business environment. Sri Lanka is

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