In the past two decades, technological advances have created almost unlimited opportunities, and today many startups and small businesses tend to seek capital that can bring dream business success. Although they can use a variety of sources of funding, most entrepreneurs are hesitant to borrow money from banks and financial lenders because of the risks. But the good news is that they have found a good option to raise venture capital from venture capitalists or venture capital firms.
definition
Venture capital is the amount invested by a venture capital company in the exchange of company ownership, including the exclusive right to equity and business operations. In other words, venture capital is the money that venture capital firms provide to companies with high growth potential.
Venture capitalists are investors who have the ability and interest to fund certain types of businesses. On the other hand, venture capital firms are registered financial institutions with expertise in raising money from wealthy individuals, companies and private investors [risk capitalists]. Therefore, venture capital firms are mediators between venture capitalists and capital seekers.
Claim
Since venture capital is a selective investor, venture capital is not applicable to all companies. Similar to submitting a bank loan or requesting a line of credit, you need to prove that your business has high growth potential, especially during the first three years of operation. Venture capital firms will ask about your business plan and they will carefully review your financial projections. To qualify for the first round of funding [or seed rounds], you must ensure that your business plan is well written and that your management team is well prepared for this business.
deal with
Because venture capital is a more experienced entrepreneur, they want to make sure they get a better return on investment [ROI] and fair equity. Venture capitalism is a high-risk - high-return investment, and smart investment has always been the standard trade model. Formal negotiations between fund seekers and venture capital firms carry everything in the right order. It is first and foremost a pre-financial valuation of the company seeking capital. After that, the venture capital firm will determine how much venture capital they will invest. Both parties must also agree on the share of equity each individual will receive. In most cases, venture capital firms receive a share of equity ranging from 10% to 50%.
Funding strategy
The capital life cycle usually takes 3 to 7 years and may require 3 to 4 rounds of funding. From entrepreneurship and growth to expansion and public listing, venture capitalists are there to assist the company. Venture capital firms typically reap the return on investment after three years and eventually achieve higher returns after the company's fifth year of listing.
The possibility of failure always exists. But venture capital firms' strategy is to invest between 5 and 10 high-growth potential companies. Economists call this venture capital strategy "average rule", and investors believe that a large number of people's profits can even offset the small losses of many people.
Any company seeking funding must ensure that their business is financing. In other words, they should be confident before they approach venture capital firms, and their business ideas are innovative, disruptive and profitable. Like any other investor, venture capitalists want to harvest the results of their investments at the right time. They expect a return on investment of 20% to 40% a year. In addition to venture capital, venture capital firms share their management and technical skills to shape their business. Over the years, the venture capital market has become a driving force for the growth of thousands of startups and small businesses around the world.
Orignal From: How venture capital can serve start-ups and small businesses
No comments:
Post a Comment