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”. Through this, entrepreneurs may need to give up part of their equity in exchange of the support they need to grow.
Even though there is a misconception that the only interest of venture capital firms are driven mainly by state-of-the-art technology, it is not always the case with regards to venture capital firms. What venture capitalists do is associate any high risks investment with big return. Well quite frankly, they won’t be making any decisions not until they have checked thoroughly the prospect, the possible consequences they might face and project viability; after all, this is still about investing in new business so they have to be careful. The venture capitalist automatically becomes partnered with the entrepreneur. 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.
Primarily, venture capital is centered on growth. These venture capitalists are interested more in seeing how small businesses can grow in to a successful lone. 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. 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.
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 the capitalist has become active participant in the company’s operation and his or her thinking streamlines on how to multiply and make fast money which will be a win-win situation for both parties.
Hope that these things have given you enough idea on what venture capitalists is about.