What is Venture Capital?
Venture capital is actually a new financing form that boomed for young entrepreneurs and at the same time, this plays a pivotal role in financing small scale and startup businesses as well as risky and hi-tech ventures. In all, developing and developed nations made their mark by offering equity capital so by that, they are more of an equity partner than simply being financier and they benefit through capital gains.
Both growing and young businesses need to be well funded, in order to survive and float their company. When financial institutions similar to banks as well as other private financial orgs hesitate to take the plunge of giving early stage financing, that is when venture capital firms enters the game. They are going to fund the project in form of equity which could be coined as “high-risk capital”. With this, the entrepreneur might have to give up some of their equity but in exchange, they’ll get the full support they needed.
When it comes to venture capital firms, they always get a bad stigma of only wanting to focus on state-of-the-art technology, which is totally a misconception. 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. Venture capitalists become partnered with the entrepreneur automatically. The truth is, this service seems to be new to some people but it is already being taken advantage of by many.
Primarily, venture capital is centered on growth. Venture capitalists are more interested in seeing small businesses growing to a bigger one. They are assisting in setting up the business, fund it and then comes along to see if it will grow. If it is a possible equity participation, venture capitalist will withdraw themselves from the partnership the moment when the company boomed and recovered the money invested by either selling shares or convertible security.
If for example that the firm opted for a long term investment from the venture capital finance, then the financier has to develop an investment attitude that is focused on a long term goal like 5 or 10 years to assist the company to grow continuously and make good profits.
There is also other forms of financing that venture capitalist has which you should 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.
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