Understanding 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.
Both growing and young businesses ought to have proper funding to be able to stay afloat and survive. When financial institutions such as banks and other private financial organizations hesitated to take chance with early stage financing, that’s often when a venture capital firm enters the scene. What they will do is fund the project that is available in form of equity that can be termed as “high-risk capital”. What happens with this is, entrepreneurs need to give up a percentage of their equity but in doing so, they are going to get all the support they need.
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 associate high risks w/ big returns. Needless to say, after the prospects and potential consequences as well as project viability is thoroughly analyzed, this is about the same time that they’re going to make a decision. Venture capitalists become partnered with the entrepreneur automatically. 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. These venture capitalists are interested more in seeing how small businesses can grow in to a successful lone. 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 the firm for instance has opted for long-term investment from venture capital finance, then the financier needs to develop investment attitude that is geared on long-term say 5 or 10 years to help the company make big profits.
There is also other forms of financing that venture capitalist has which you should 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.