Venture Capital

Following is simple and broad explanation of Venture Capital for reference by the entrepreneur thinking of starting their own business.

Venture capital refers to the funds invested in buying a part of a company or business that shows the possibility of high growth and high probability of profit accompanied by an equal possibility of loss. This is sometimes referred to as "Risk Capital" due to the high risk involved in the investment.

Venture capitalist are investment firms that expect a return on funds invested, this may come from the sale of the established business or eventually through selling shares of the business to the public. In return for the funds, the investor may agree to receive a percentage of the business or perhaps position themselves on the board of directors.

Invested capital can be an effective means of funding a new business that is too small to raise capital or acquire a bank loan. In return, the business owner may be required to provide the investor some control in the decision making of the business. Often investors are only interested in a new business with qualities such as innovative technology, scope for growth and excellent management skills as opposed to a business for sale. The terms of investment are negotiable and are usually for a period of five to seven years.

Investment fund managers may also add value to the business by actively participating in the development and promotion of the business to ensure a competitive position of the business entrepreneur in the market place.

There are many forms of Venture Capital investment the ones that are of interest here are simply explained in the following paragraphs.

The early stages of financing are seed financing and the start-up financing. The seed financing is a term referring to a small amount of funds provided to an entrepreneur to start a business from an approved business plan.

Capital may be invested in a business franchise that is already established but has not yet marketed their products and is commonly referred as Start up Financing. Another form of financing is an investment made in a business that is already trading and has grown accounts and products but is not yet making profits.

A further  form of investment is when there is a need for funds to expand an existing business that is showing a profit.

Acquisition financing is a term used when Venture Capitalists invest in a business in which the investor acquires a percentage or possibly full control of the business.

There should be a perfect balance of skills and talents between the entrepreneur and the provider of Venture Capital in order to ensure the success of the venture envisaged.