Venture capital is money loaned by investors to start-up firms and expanding businesses to finance their growth. For businesses looking to expand venture capital is crucial. It can provide the funds needed to pay for infrastructure upgrades or to hire new staff. Sometimes venture capital can take the form of managerial and technical expertise. In fact venture capital is the lifeblood of many businesses. It enables people with clear vision, a detailed business plans and the drive to work towards making their vision a reality.
Many venture capitalists are usually banks and other financial institutions or wealthy individuals. They are always looking to invest in companies that look like they have a bright future. Venture capitalists take a risk when they invest in expanding companies. For taking such risks they are rewarded with money and power from the companies in which they invest. It is a chance for both entities to make money. Generally companies which seek out venture capitalist have had a hard time raising money any other way. For some of these entrepreneurs the venture capitalist is their last resort.
Due to the risks involved venture capitalists tend to have very strict criteria by which they decide in which business they will invest. Entrepreneurs looking for funding also have standards they want the venture capitalists to meet before they agree to join forces with them. When there is a good fit it can mean the world for the future of a company which is trying to expand. The influx of capital can turn a solid business with great potential into a shooting star than can make both entities wealthy. This is important because investor not only want interest on their investments, they would like large profits as well.
Venture capitalists trying to protect their investments sometimes ask for as much as 50 percent ownership in the company in exchange for their money. Some even ask for more. Some also demand the right to elect a board of directors and the right to sit on the board. The venture capitalists also ask for all financial and other important reports.
While the investor and the board may offer technical advice they generally let the owner control day-to-day management unless the company becomes suddenly at risk. Once the growing company accepts the venture capital it means the loss of some independence and profits.
Venture capital is the lifeblood of many expanding companies. Entrepreneurs often use them as a last resort. Venture capitalists lend their money, but they demand some control and sizable profits in return. However the money and other resources venture capitalist bring is responsible for many new products and services coming into the marketplace. Ideas and plans alone do not guarantee success. Venture capital plays an important role. It enables creative individuals and innovative companies to bring new and better products, services and information into the marketplace. Frankly speaking venture capital plays a major role in enabling innovative new products and services into public consciousness.
Ethan Han recommends reading Crescent Point Venture Capital for more information on private equity and fundraising.