When you want to start a business you must have some money to pay the necessary items needed such as office equipments , deposits and stocks and this is called a startup capital. If you have insufficient fund, then you may approach a firm or any investor who is willing to pump-in their money into your start-up business and this fund is called venture capital.
There is a different between venture capital and business loans as the former does not required to be returned to the investor or contributor. If you borrow money from bank , you have to repay it back according to what has been termed by the bank .
As for venture capital , the money is considered investment in exchange of equity given to the contributor. The contributor will then get involved in the business by having one of their members to become one of the directors in the company. With this, they have the right to know the operation of the business and they are also involved in the decision-making. Actually, the investor seldom get involve in the business matter unless the position of the business is alarming.
Venture capital does not only meant for funding the start-up business. There are several types of capital which are funded to certain stages of the business namely:-
Seed Capital – where it is used for research or planning stage
Start-up Capital – for the procurement of the early needs
Mezzanine Capital – for the expansion after all the above are met
Later-stage Capital – for the transitional stages of the business
When you approach the venture capital firm, your business plan must be for the requirement of a start-up business.
Venture Capital firm are very selective about their investments. Much consideration is put on many factors such as product marketability, location , management capability and possible new market entrants. Apart from the above, venture capital firm does accept those business that could reap big profit between 5 to 10 years period.
If you want to apply for a start-up capital, you are to submit a very comprehensive and complete business plan. Among the information required are the list of your management team, their qualification and experiences , your financial projections etc. Don’t forget to specify what are the additional requirements that are needed for your business.
When the venture capital want to exit from your business, they will sell the share through Initial Public Offer of the company. The other way out is by merging with other company where the venture capital will receive payment from disposing their stocks . Venture Capital firm would also get the cash from the equity exchange and the management teams will be given some incentives from the selling of equity.
You should know and understand about this capital venture firm and their way of investment. By understanding it , a simple young entrepreneurs could know what is the best option to fund their start-up business. If you feel that by having the venture capital is the best option , go ahead and submit your plan. This may be the starting of your success.
Souce: financeabout.biz