Venture Capital and Investing in Start-Up Companies
Venture capital is a type of private equity funding that is offered by venture capital funds or individual venture capital firms to small, budding, or emerging businesses that are deemed to have medium to long growth potential or that have proven high potential for success. The term Venture Capital also refers to a group of funds that act as an association. Venture Capital firms collectively pool resources to assist new and growing companies obtain the capital they need to launch and grow. This type of financing is referred to as Venture Capital.
The venture capitalists provide start up capital, seed money, or Series A and B funding, depending upon the type of start up. Usually, start up costs do not require repayment of venture capitalists. However, if a company has special skills or a market that it can provide that is not provided by a competitor, then it may require repayment of some of the venture capitalists’ investment. Also, companies that receive significant proceeds must pay back a portion of their debt to retain their status as a public company.
In the United States, most private equity firms belong to what is called an Angels’ Club. This club provides start up companies with the money, advice, and leadership they need in order to launch their operations. As a member of an Angels’ Club, a company will not be required to repay the investment made by the members of the club. However, there are also companies that invest in the equity of their subsidiary or wholly owned companies in order to obtain preferred stock in the parent company. Venture capitalists are the main source of funding for angel investors.
Venture capitalists typically invest in high risk high profit ventures. Examples of ventures that venture capitalists are interested in funding are technologies that are difficult to produce, natural health products that are unprofitable before the product has been released, or highly volatile penny stocks. Many investors work with groups of like-minded investors. This enables them to invest in similar businesses and get a better investment rate from the group. The downside to working with a group of investors is that they are not able to provide a large amount of funding.
Private equity firms are another source of venture capital available to small businesses. These companies offer start up loans usually in the form of lines of credit that need to be repaid upon the successful completion of the business. Members of the private equity group will receive a financial report once a year that outlines the venture capital and credit investments made by each partner. The partners then make their determination of whether to invest further in the businesses.
Seed Capital is a relatively new form of venture capital available to startups. It refers to a group of money invested by an individual or group of people in order to invest in a technology, system, or idea. The term seed is derived from the fact that many plants grow from seeds. Seed Capital is being used more frequently by startup companies, but it has been used by larger corporations for many years.