Venture Capital
Venture capital is an excellent alternative form of
financing a business, or better, a venture, mainly suitable for small
and young companies that have the potential for growth. In cases where
banks take a too conservative approach venture capital institutions
might be able to provide the financial backing required to still put
business plans into action.
Venture capital enables a small business to expand
and become big enterprise. Unique new ideas can be realized. But as
usual, also in venture capital, the first step is the most difficult
one. An application for venture capital has to be made in a most
sophisticated manner.
Venture capital institutions offer not just capital
sources but also economic resources. Many ventures capitalist are
professional business people from all types of business and industry and
can contribute into any business they invest in by many ways.
Whether private or institutional venture capital
sources, they will invest with high level of risk. The risk is taken in
the hope that the return rate on the investment will be high and will
justify the entrepreneurial risk. Venture capital invests in initiatives
in research, developments and other business innovations. Usually, real
estate is not financed by venture capital.
Venture capitalists are especially interested in
businesses with global potential and international character. As a rule,
it should be possible to make the highest possible level of profits out
of a minimum of investment capital. Venture capital is not a short-term
participation, but it has to be considered as a medium-term partnership
of 5 to 7 years. It is a temporary but active participation, normally a
minority partnership. This partnership may even extend to an advising
and supporting of management and marketing.
Venture capital institutions are looking for a
business with a good product or service, a market where they business
can gain a protected position, high margins of profit possibilities and,
of course, an innovative management team with appropriate experience and
qualifications to make things happen according to a business plan.
Their investment conditions include:
-
A strong, committed and of proven ability
management team
-
Sound business plan
-
Possibility of a market share
-
Innovative general business policy
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High profit potential
Venture Capital Finance Stages:
-
Seed Capital: This is the financing of the
development of a business
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Early Stage Financing: Financing of the first
growth of a company
-
Growth Capital: Financing of the intermediate
growth
-
Business Expansion Scheme – BES: Financing of
sales and product expansion
-
Development Financing: Financing of new project
and developments
-
Management Buy-Out – MBO: Financing of the
takeover of the company by members of the staff
-
Management Buy-In – MBI: Financing of a
takeover with subsequent replacement of the present management
Advantages of Venture Capital Financing
-
Venture capitalists can introduce the business
to an professional network of strategic partners
-
Easy exit plan
-
Venture capitalists are ready to take control
of a business if the management is unable to drive the business
-
Venture capital financing allow people to build
their business with the money of other people