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. 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.
In order for newly startups and growing businesses as well, it is critical for them to be funded well. 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. What they will do is fund the project that is available in form of equity that can be termed 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.
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 associate high risks w/ 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. As a matter of fact, this service may seem to be new for some but it’s something that many are already taking advantage of.
Venture capital is primarily focused on growth. These venture capitalists are interested more in seeing how small businesses can grow in to a successful lone. They will help in each and every step of the way from setting it up, providing the funding needed and check if it’ll grow. If it’s a potential equity participation, then the venture capitalist comes out of their partnership as soon as the company has become profitable and recoup the money invested by selling shares or perhaps, convertible security.
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 are various forms of financing that venture capitalist use that you need to learn. This is when the capitalists has played an active role in the operation and think of ways that can help them make money fast.
Hope that these things have given you enough idea on what venture capitalists is about.