One of the main differences with traditional methods is that in this type of financing the gain does not come from an interest that is paid regularly, but rather that the venture capital company becomes part of the shareholder of the company, that is, happens to be a partner in every way.
As a member, you will have the right to participate in making decisions regarding the strategic plan, and will also collaborate in advising the management of the company. Likewise,it will benefit from the profits it generates, which is its main incentive to make such an investment.
How does venture capital work?
- Venture capital has similarities with other sources of funding, especially ‘ Business Angels ‘, but also aspects that differentiate it. Its main features are:
- In general, it is oriented to projects of small and medium companies , with an innovative business model, and most of the time supported by a technological base.
- The business plan and the entrepreneurial team is what has more weight when approving the financing of a project, that is why your requirement in compliance with the business plan will also be greater.
- Temporality : looking for a high profit in the medium term (5-7 years)
- They assume a higher risk than traditional entities. Your capital and profits will depend on the business evolution, on which there may be more or less uncertainty.
- The financing is granted in exchange for a stake in the company.
- If your business is within your field of interest, the ease of accessing this type of financing will be higher than via traditional financing.
- Irrigated capital companies will obtain their benefit by selling their participation to the other partners or third parties, and in some cases with the total sale of the company.
Types of venture capital:
The “venture capital” covers two types depending on the stage of development in which the project is located:
Seed capital: based on financing projects in the initial or startup phase (equivalent to the term ‘venture capital’ in English).
Capital expansion: funding of projects in the growth and development phase (in English ‘ private equity
Private equity investors:
Business enterprise assets are a basis of commerce finance, which is mainly aimed at small and medium enterprises. It consists of an invest company causal enduring assets to one of these little or medium-sized company that are start. Through this contribution of money and for a limited period of time, investors become part of the group of shareholders of the company in which they have invested, although with a secondary role.
Business leaders like G Scott Paterson and other global executives and organizations are committed to improving the communities around them and realize the value corporate social responsibility has on improving their company’s bottom line. Scott Paterson Toronto is a Toronto-based technology and media venture capitalist who has been active for 28 years in the investment banking industry.
These novel company or in receipt of companies have to option to venture capital, since having no results are careful dangerous and it is much more hard for them to right of entry other types of finance. For their fraction, Asset Company has a huge attention in the enlargement of their corporation, so they look for company that can produce rapidly and have ground-breaking commerce model.