Venture Capital FinancingVenture Capital Funds For Entrepreneurs and Small BusinessesVenture capital is a fund raised by a group of wealthy investors, which is then made available to small companies and startup firms. These small businesses and potential entrepreneurs usually have excellent growth potential but lack the funds to proceed. Because there’s a chance that the business may not do well at all, venture capital is also known as risk capital. So how does venture capital work? It’s not as difficult as it sounds. A start up business will solicit funds from a venture capital firm. If everything goes well, the venture capital firm will invest a certain amount of money into the start up, drawing on it’s capital over several years. When the fledgling firm “exits,” (meaning the business is purchased or goes public), the investment is returned to the venture capital firm’s investors, with a percentage of the profits thrown in for good measure. How does one find a venture capital firm? One way is through a trusted financial expert such as an attorney, financial advisor, stockbroker or accountant. With luck, one of these professionals will recommend you and your business to a venture capital firm. Be sure to do your research first. The library and Internet host a wealth of information and there are many books available on the subject. You’ll need to know what steps are necessary to put in place before seeking out venture capital. For instance, a business plan and executive summary are necessary in order to convince any venture capitalist to invest in your idea. A typical venture capital firm may invest
in perhaps one out of four hundred businesses that are seeking their assistance.
After losing money in the dot com boom of the nineties, many firms have
become quite selective. If you wish for one of these firms to make an investment
in you, you must be convincing and have great negotiation skills. Your
business or product may be fabulous, but if you don’t have the ability
to sell it, it’s not going to bring in any investors.
Venture capital funding or financing is a good option for those corporations that have a unique corporate proposition, which could earn high ROIs or returns on investments that would be at least 30 percent annually. These corporations generally need huge outlays of capital. The venture capitalists typically get an ownership stake, so that they would be able to share with the business risks and profits of the corporation. Hence, it could ultimately become one of the corporation's institutional shareholders. In exchange, the corporation would be able to benefit from the operational and financial support, which would be provided by the management team of the venture capitalist. One crucial consideration for the corporation would be to get sufficient capital to be able to quickly achieve market share. The additional funding that has been raised through venture capitalists could provide the company with a sufficient working capital to have the capacity to market, brand then sell the products of the company. By having a venture capitalist or an institutional shareholder in your corporation, you would be able to give your customer confidence. Also, by getting a venture capitalist on board would mean that corporate governance is a part of the policy of the company from its start. However, a negative aspect of venture capital funding would be that a company might feel that they lack control as venture capitalists could have stringent covenants such as not allowing the company to be able to change the direction of the business without asking for approval. A company or corporation must view venture
capitalists as individuals who are committed to invest on the growth of
the company, thus creating a value for themselves as they provide strategic
guidance, sales referrals and business network contacts.
|
|