SolveYourProblem
Article Series: Venture Capital
Venture Capital A To Z
What
Is Venture Capital?
A
lot us have ideas, but the real challenge is making them
a reality. There are a lot of opportunities
in the business world but the real challenge is making out.
Earning money is as difficult as finding it. No one really
wants to be a cubicle drone, but without any capital, most
of us are destined to remain
regular employees.
There
are many ways to start a business. If you have a great idea
that has a big potential, there are ways to access funds
for
your business. Venture capital funds are one of the sources
of seed capital for your start up company.
Venture
capitalists invest on start up companies with big potential
and high growth. These are usually high technology
companies that want big returns in the long run. The
downside of this is the venture capitalists get a share
of your company
and have say in the company's decisions. A person who has always
dreamt of becoming their own boss may find this a tad uncomfortable.
The
low down on Venture capital.
There
are some venture capitalists that provide
financial services to start up companies. These are
usually companies that are entirely new, with mostly an
idea and a business plan
in their hands. Venture capitalists are willing to make risky
investments on businesses that bank loans and capital markets
are afraid to make.
Companies
that they invest in are generally high technology businesses
such as computer and electronics. They are also interested
in development and research.
Venture
capitalists are general partners that offer limited partnership
to a company. These general partners are usually
made up of executives from a financial firm. They have the
ability to pool in a large amount of capital. These funds are
usually taken from pensions, foundations, insurance companies,
financial endowments and financial institutions.
This may seem a very good idea for a starting company but
there is downside to this. In the business world nothing
is free and general partners require 20% of the net profit of
the company. They also need a 2% management fee every year.
It's
also not easy to attract venture capitalists. They often
have strict requirements. They will not invest in companies
that don't have proof of their technology. They may agree to
meet up with you, but that doesn't mean you're already on
good terms. 999 business plans
out of
1000 get rejected. They can reject
you for a lot of things that may even seem trivial at the
moment. The hurdles don't stop there.
General
partners may help your company jumpstart and expand. But
they won't just let you make the decisions when they have
invested a lot of money in your company.
In
some instances this may lead to problems - especially when
general partners only care about making money for themselves.
They may invest in advertising but not in the right places
for your customers. Others like to spend too much money
and the suddenly growth is too fast to handle.
Before
you find yourself a venture capitalist make sure you are
aware of their impact in your company. A venture capital
fund may seem convenient at that time but you should always
look ten steps ahead. Look for a general partner that will
help your company grow not just add weight to their wallets.
# # # # # SolveYourProblem.com
: 2008
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