Inshan Meahjohn : Few words carry more fascination to an entrepreneur than “venture capital. ” The two words may suggest different things to be able to 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. This involves high risk for the investor in starting ventures or later levels to continue expected improvement and growth. Additionally, it retains out the opportunity of large profits in exchange for the risk of investing.
Venture capital differs from standard bank financing. Instead of repaying a conventional loan within a designated time period at a predetermined rate of interest, venture capital pay for investments are repaid through a negotiable percentage of the entrepreneur’s stock in the business over 3 to seven or 8-10 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.
Usually, the conditions of ownership are negotiated and predetermined before an enterprise investor will determine the financing.
How a venture capitalist chooses to structure his investment will depend on the style and track record of the venture fund. That can be straight equity, a combination of equity and loans, or a falling scale of reversion from majority control of the entrepreneur’s stock to fraction ownership after achievement of certain milestones. Sales and revenues or an awaited (IPO) are perennial favorites.
The advantages of venture capital for a business owner are quickly apparent. There is usually no necessity to repay a bank loan. The venture capitalist and the entrepreneur presume some of the risk of the new business together. Better, there is usually no requirement to tie up up funds dedicated to interest. That factor by itself may be used to propel the business forward.
Further, the venture capital firm can frequently bring much needed expertise to a new entrepreneur’s business. Over and above capital, knowledgeable and well-connected investors can further lend invaluable knowledge to the startup firm.
Sharing ownership and control of the entrepreneur’s business is often considered as the primary disadvantage of the involvement of venture capitalists. This could be the main reason for lack of success for small, inexperienced entrepreneurs, resulting in a failed deal.
Just before even considering the small, but powerful area of venture capital, the entrepreneur must know and understand two chief areas of matter.
- First, the entrepreneur’s industry expertise and background should be flawless. That 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 the industry.
- It may show a third-party perspective to confirm the need for their product by the industry or retail consumer.
- Finally, it should clearly demonstrate the simple fact that the suggested business can grow and achieve profitability in record time.
Secondly, the businessman must look into the most appropriate “fit” with the chosen venture firm. That will require an understanding of the enterprise firm’s preferred emphasis on investment, the expected time frame for funding, it is venture partners, successful past funding and desired geographic locale.
The task of choosing a venture capital source is far from simple.
It runs the range from your wealthy relative who has always loved you and has just inherited a few hundred or millions of dollars. Inshan Meahjohn might be one of the handful of people who know you directly and is “seed capital” funders for you and your organization.
Despite a lingering slow-down in the worldwide economic, often there is plenty of money available for the businessman with a well-thought-out novel idea. The only thing required is more attention to research and facts.