What is Venture Capital?
As a matter of fact, venture capital is a new form of financing that has become a major boom among entrepreneur and at the same time, this plays a critical role in financing small scale and startup businesses and also risky and hi-tech ventures. Basically, developed and developing countries have made their mark by way of providing equity capital so by that, they act more of an equity partner instead of being financiers and they benefit via capital gains.
Both growing and young businesses need to be well funded, in order to survive and float their company. More often than not, venture capital firms enter the scene only when financial institutions just like banks are doubtful of financing early stage businesses. They are going to fund the project in form of equity which could be coined as “high-risk capital”. Through this, entrepreneurs may need to give up part of their equity in exchange of the support they need to grow.
Despite the fact that there’s a misconception that the main interest of venture capital firms are primarily driven by state-of-the-art technology, it isn’t always the case when it comes to venture capital firms. Venture capitalists are associating high risks with big returns. Obviously, after analyzing thoroughly the prospects as well as potential consequences and project viability, that’s about time when they will make a decision. When everything is set and done, it makes the venture capitalist to be in partnership with the entrepreneur. Whether you believe it or not, this service is being taken advantage of already by many different businesses today.
Growth is the primary focus of venture capital. Venture capitalists are more interested in seeing small businesses growing to a bigger one. They will be helping in everything that is needed from setting up the business, funding it and comes along to see if it’ll be a success. Now say for example that it is a potential equity participation, venture capitalist is going to withdraw themselves from the partnership and when the company was able to recover the invested money from them.
Say that the company has chose to go for a long term investment from the venture capital finance, it will be essential for the financier to have a long term investment attitude such as 5 or 10 years to assist the business.
There’s another type of financing that venture capitalist has which is something you must learn. This is when they become an active participant of the company’s operation and their thinking streamlines to how they can multiple and make quick money that’ll be a win-win scenario for both ends.
Hope that these things have given you enough idea on what venture capitalists is about.