Learning about finance is a must for all irrespective of the job they do or the type of living they have. It is always better to get well accustomed to the finances as they play a major role in improving one’s economic conditions.
What is Venture Capital?
It is a form of financing in which investors provide to startup companies and small businesses where they believe that they have long-term growth in terms of creative capital solutions.
Venture Capital is a form of private equity. This is not always in terms of money but sometimes this assistance can be in form of technical and managerial expertise.
Why is Venture Capital important?
This venture capital is useful for the startups to allow them to get their business started and the founders to fulfill their vision in these overbearing high-risk ventures.
Venture Capital is a part of private equity which also includes buyouts and private placements.
Features of Venture Capital Investments
When discussing creative capital solutions the venture capital has all these below-mentioned features.
- Venture capital can handle high risk as this is for startups that have no guarantee.
- There will not be more liquidity
- The growth and success will be of long term as a business can not be successful in a short time
- Venture capital investments are mainly done in innovative projects
- The suppliers themselves will participate in the management of the company as they will own the business.
Methods of Venture Capital Financing:
There are three main methods in venture capital investments. They include
- Equity
- Participating Debentures
- Conditional Loan
Phases of Venture Capital Funding:
The venture capital funding of creative capital solutions will not be done in a single phase. This involves four stages of the company’s development
1. Idea Generation and Submission of the plan
The first phase is where the company approaches a Venture Capital with a business plan having a summary of the plan describing the market potential and size and the current opportunity of the company.
2. Starting the Process
The second phase involves one on one meeting which is for discussing the project in detail.
3. Due Diligence
This depends on the nature of the business proposal. This is where all the customer reviews and doubts will be clarified and information will be exchanged.
4. Final funding
Once the previous phase is successful the venture capital gives a term sheet which consists of the agreement for the investment. This can be negotiable and will have to be accepted by all the parties involved.
Types of Venture Capital Funding:
There are many types of venture capital funding. Some of them include:
- Early Stage financing
This includes seed money before the startup, and then the first stage of the loan.
- Expansion Financing
This is when the company wants to expand in a major way.
- Buyout Financing
This helps the company in getting hold of some parts of the company or sometimes the entire company.
Conclusion
Venture Capital brings wealth and expertise to the company and a large sum of equities will be provided. There is no obligation that the money has to be returned at first.
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