What is Venture Capital and it’s Advantages?: Funding is usually one of the most recurrent concerns of companies, especially if they are small or medium-sized companies that seek to open up or consolidate in a given market. There are numerous types of financing that companies can use according to their needs, interests, expectations and projection.
What is Venture Capital and it’s Advantages?
One of the most used is “venture capital”, which consists of the contribution of resources from other companies or companies that, for that matter, become a kind of investors. Depending on the conditions in which the sum of the contribution is agreed, investors will have more or less rights over the activity derived from the invested capital or, failing that, from the total of the company.
Hence, companies that receive such contributions are called “venture capital companies”, since it is clear that they have difficulties in obtaining financing through ordinary channels. You can take help from financial experts like Mark Attanasio and Donato Sferra who are working as Financial Services Executive in Toronto and has helped many business owners.
However, becoming a venture capital company does not imply an unfavourable position in all cases. Let’s see some of the most relevant characteristics of this financing figure and some of its main uses.
What is Venture Capital?
Venture Capital is one of the most recurrent sources of financing among start-ups. In this post we present its main advantages.
What are the funds of Venture Capital?
These are large funds, which generally buy blocks of shares that allow them to have access to a majority of board members in the board of directors of the start-ups, and therefore, intervene in this way in the management decisions of these Businesses.
What types of investment exist in Venture Capital?
Venture Capital: These are investments in technology-based companies with high growth potential. The venture capital fund purchases a portion that gives it control of the company and appoints a new management team, in order to change the management of the company and enhance its valuation. These are investments with temporary horizons between 3 and 7 years.
Private Equity: Investment in Private Equity requires greater volumes of investment that are used to buy companies with high capacity to generate cash flows. Mainly the investment of prívate equity is aimed at companies more mature than the Venture Capital. There is a variant of Private Equity called Management Buy Out or MBO. In this case, the venture capital fund buys the company with the help of the management team of the company itself.
How do the Venture Capital companies undo the investment?
- Sale to a strategic investor
- IPO (Initial Public Offering or IPO through initial public offering of the company’s shares)
- Repurchase of shares by the company intervened
- Sale to another venture capital fund
Main Advantages of admitting a Venture Capital entity into your company:
- Access to alternative source of financing to banks
- Multiplies the growth rate of the company
- Optimizes the profit and loss account and cash generation (Cash Flows).