Few words carry more
fascination to an entrepreneur than "venture capital." The two words
may mean different things to different people. Across the world, venture
capital means the freedom to have the money to turn your idea from the
workbench or the lab into reality.
In short, venture
capital is money designed for high-risk investment in startup enterprises. It
involves high risk for the investor in beginning ventures or later stages to
continue expected progress and growth. Working Capital Financing
also holds out the possibility of large profits in exchange for the risk of
investing.Venture capital differs from standard bank financing.
Instead of paying
back a conventional loan within a designated time period at a predetermined
rate of interest, venture capital fund investments are repaid through a
negotiable percentage of the entrepreneur's stock in the business over three to
seven or eight years as the company succeeds and grows. In most cases, a successful
initial public offering (IPO) will allow both investor and entrepreneur to
prosper by bringing the company's stock to the public market.
The advantages of
venture capital for an entrepreneur are quickly apparent. There is usually no
requirement to repay a bank loan. The venture capitalist and the entrepreneur
assume some of the risk of the new business together. Better, there is usually
no requirement to tie up funds dedicated to interest.
That factor alone can
be used to propel the businessforward.Further, the venture capital firm can
often bring much needed expertise to a new entrepreneur's business. Beyond
capital, knowledgeable and well-connected investors can further lend invaluable
knowledge to the startup firm.
Before even
considering the small, but powerful area of venture capital, the entrepreneur
must know and understand two chief areas of concern
- First, the entrepreneur's industry expertise and background should be flawless. It should be on the cutting edge of industry development.
- The startup company must understand the rigors of successfully running a business, as well as marketing, no matter its industry.
- It should show a third-party perspective to prove the need for its product by the industry or retail consumer.
- Finally, it should clearly demonstrate the fact that the proposed business can grow and achieve profitability in record time.
Secondly, the
entrepreneur should consider the most appropriate "fit" with the
chosen venture firm. That requires an understanding of the venture firm's preferred
emphasis on investment, the expected time frame for funding, its venture
partners, successful previous funding and desired geographic locale.
The job of choosing a
venture capital source is far from simple.
Despite a lingering
slow-down in the worldwide economy, there is always plenty of money available
for the entrepreneur with a well-thought-out novel idea. The only thing
required is more attention to research and facts.
