Venture capital: Aid for start-ups to grow
Venture capital is a form of funding to the start-up firms or small businesses that are believed to have the growth potential. Venture capital comes from big companies, investment banks and other financial agencies. Venture capital doesn’t only refer to financial assistance, it can be a provision of man power, technical support or any managerial help. Most of the high net worth individuals provide the funding to these emerging companies.
Most of the start-ups rely on funding for the company’s operation and it has become popular also as it gives the chance to investors to have an equity, thus taking part in the decision making also.
How is the venture capital established?
Large ownership chunks are created and divided amongst investor through independent partnerships that are established by the venture capital firms. These partnerships comprise of several similar enterprises or they can be different also.
Difference in private equity and venture capital
Venture capital, as just mentioned above, is funding to the newly emerging companies in the market whereas private equity is fund invested in already established companies that seek a shoulder to share the ownership responsibility.
There are several entrepreneurs, angel investors, who have gathered wealth from various sources and wish to make further more investment. The funding is not a random pick and choose there is an ideology involved that looks into a company’s operation and business plans. The investors look for funding companies with a better management, vision and the growth aspirations it has. To play safe, usually, the investors provide venture capital to those company that have similar work function or any sector they are familiar with. If they have no idea at all, then they take a training to get familiar with the functionality of a sector. Venture capital comes at a quite later stage unlike angel investing that is at the initial stage. Venture capital is provided once a company is showing a success graph and probabilities are high that the progress is sure to happen. Angel investment is a risky investment for that matter. However, it is a well thought decision by the investor.
Process of venture capital
A company seeking venture capital has to submit their business plan to the venture capital firm or the interested investor. The investor then investigates the company’s operation history, business model, management and other processes. This background check and information helps the investor to decide whether the venture capital should be provided or not. If the company decides to invest, then it monitors the company and also performs an active role in the company’s decision, its progress and business planning.
Venture capital is not easy funding to help the start-up grow, it is a well-thought investment. There are several faces to venture capital also and different forms of it that vary with the age of the company. Therefore, know the area of investment well before you think of investment.