Venture Capital – When You Need MORE Than MONEY!

If you are looking for setting up firms in technology, medical and retail sectors and you are lacking finance to invest or start up, don’t worry. The simple answer is ‘Approach VC.’

Venture capital is money provided by investors to privately held companies with perceived long-term growth potential.

Professionally managed VC firms generally are limited partnerships funded by private and public pension funds, endowment funds, foundations, corporations, wealthy individuals, foreign investors, and the venture capitalists themselves. (Source: – Ventureglobe.com)

These firms invest in private companies that need capital to develop and market their products. In return for this investment, the venture capitalists exact a price significant ownership of the company and seats on the board of directors.

Venture capitalists raise money from institutional investors, state pension funds and high-net worth individuals, usually in the form of partnerships. Investors should look at the firm’s track record and expertise when evaluating an IPO.

Does VC mean only Finance?

No. David Hsu wrote in the article ‘What Do Entrepreneurs Pay for Venture Capital Affiliation?’ in Journal of Finance, “If a company borrows from a bank and the terms are similar, it does not matter what bank it gets the money from. In seeking VC investment, however, a company is hungry not just for cash but also for the venture firm’s reputation and access to a network of relationships with customers, suppliers, investment bankers and other important constituents in the universe that the entrepreneur cares about”?

Key Decision Factors

There are three key factors analyzed by VC while investing funds in business.

1. Values of your business,
2. Rate of Return of the Investment and
3. Exit strategy

Jargon of Venture Capital Funding

1. Sweat Equity – Lawyers, accountants and other professionals will often work for free for a start up in return for handling their business, if successful, or for a small equity stake.

2. Pre-used funding – This is the earliest stage of funding. It allows an entrepreneur to explore an idea and prepare a business plan. Universities generally do for students.

3. Self-funding – This early stage funding allows the entrepreneur to prepare a prototype of the product and assemble a management team. Seed investors expect to provide business advice and possibly even office facilities.

4. Startup funding – This entails the commitment of significant funds so the business can complete product development and start initial marketing. Soft starts need to demonstrate a product with a competitive advantage. Hard start companies e.g. pharmaceutical or biotech needs to show detail research. Start up investor also helps in recruiting key personnel and customers for business.

5. Development Funding – This is financing provided to companies that have completed product development and are commencing operation and sales. Investors closely monitor cash flows, head count and sales revenues.

6. Mezzanine Funding – Large stage financing that typically combines debt and equity and is used jus prior to Initial Public Offer.

7. Expansion Funding – The capital is provided for growth and expansion of an established business. Investors expect to monitor financial performance. But no solution is offered.

8. Mergers and Acquisitions, Management By-Outs and external Management Buy-Ins are forms of late stage financing.

Following types of funding are provided by venture capitalists.

1. Revolving credit lines
2. Secured bridge financing
3. Purchase order financing
4. Acquisition financing
5. Inventory loans
6. DIP and Exit financing
7. Cash flow loans
8. Real estate financing
9. Loan guarantees
10. International real estate
11. Conventional factoring
12. Asset based loans
13. Letter of credit financing
14. Funding for healthcare providers
15. Equipment financing
16. Equity participation
17. Construction loans
18. Unsecured loans based on personal credit of principal
19. Mezzanine financing
20. SBA loans
(Source: Ventureplan.com)

Countries and Venture Capital Associations

You can approach to following association for venture capital to be invested in your business.

CountryAssociation or FirmsVisit at
AustraliaAustralian Venture Capital Association Limitedhttp://www.avcal.com.au
BelgianBelgian Venturing Associationhttp://www.bvassociation.org
BritishBritish Venture Capital Associationhttp://www.bvca.co.uk
CanadianCanadian Venture Capital Associationhttp://www.cvca.ca
DutchDutch Venture Capital Associationhttp://www.nvp.nl
EuropeEuropean Investment Fundhttp://www.eif.org
EuropeEuropean Private Equity & Venture Capital Associationhttp://www.evca.com
FinnishFinnish Venture Capital Associationhttp://www.fvca.fi

Finally

Yes, finally, before approaching to any VC, you must know your mind better, your plan much clearer and before convincing other ensure you are convinced for your venture.

“The key to a leader’s impact is sincerity. Before he can inspire with emotion he must be swayed by it himself. Before he can move their tears his own must flow. To convince them he must himself believe” said Winston Churchill.