Venture capital is financing that investors provide to small businesses and startup companies that are assumed to have long-term growth potential. Venture capital is an essential source of money for startups without access to capital markets. For investors, risk is typically high but the problem for the startup is that these venture capitalists generally get a say in company decisions.
Marc J Leder has been engaged in venture capital firms for more than 25 years. Generally, venture capital comes from investment banks, well-off investors and any other financial institutions that pool similar investments or partnerships. Although providing venture capital can be perilous for the investors who put up the capitals, the potential for above-average returns is a striking payoff. Venture capital does not always take a financial form, it can be provided in the form of managerial or technical expertise. For startup ventures or new companies that have a restricted operating history, venture capital funding is progressively becoming a widespread capital raising source, as funding through loans or other debt mechanisms is not readily available.
In emerging industries, for up-and-coming businesses, or for small businesses, venture capital is largely provided by (HNWIs) high net worth individuals, also known as ‘angel investors’ and venture capital firms. The National Venture Capital Association (NVCA) is an association composed of hundreds of venture capital firms that provide funding to entrepreneurial and innovative ventures. Entrepreneurs generally seek venture capital when they need capital but are powerless to raise it elsewhere. However, for start-up companies, this source of funding is unavailable since they have not yet produced earnings to preserve and even after the start-up, a developing company commonly requires more capital than its cash flow provides.
Self-made investors providing venture capital normally share numerous key characteristics. The majority look to capitalize in companies that have a fully-developed business plan, well managed, and are composed for substantial growth. These investors are also expected to offer funding to ventures that are involved in the similar or same specialties or industries with which they are familiar. Another common happening among venture capital firms is co-investing, where one angel investor funds a venture together with an associate or trusted friend, often another angel investor.
The Process of Venture Capital.
According to Marc J Leder, the initial step for any commercial looking for venture capital is to submit a business plan, either to an angel investor, or to a venture capital firm. If interested in the scheme, the investor or the firm must perform due persistence, which includes a thorough analysis of the products, business model, operating history, and management among other things. Once due meticulousness has been completed, the investor or the firm will pledge an investment in altercation for equity in the company. The investor or firm then takes an active role in the funded enterprise. Because capital is usually provided in rounds, the investor or firm vigorously ensures the venture is meeting certain milestones before getting another round of capital. The investor then after a period of time exits the company, usually 4 to 6 years after the initial investment, through an acquisition, merger or IPO (initial public offering).