Most new and unquoted companies, in their early stages, fall short of sufficient capital and struggle to remain functional. They turn to capital investment support from outside investors until they can make profits. The demand for Venture Capital Investments has grown at an alarming rate in the last couple of years. The increasing trend for Venture Capital Investments has been fueled by factors like IPO market improvement, increase in availability of entrepreneurial talent, Venture Capital formations supported by Government policies, growth of cutting-edge technologies, etc. A combination of these factors, and several others, has caused Venture Capital investors to continue funding and supporting promising businesses.
Venture Capital Investment – What is it?
A Venture Capital Investment is monetary assistance given to you and your company in the early stages of your business. Venture Capital Investments help successfully launch your business in the market. Venture Capital Investments provide your business with resources it needs, ensuring your business grows to its maximum potential. Whatever your demands – whether recruiting top-notch business talent, manual labourers, new and advanced machinery, or setting up of innovative technology – Venture Capital Investments assure allowances for all your business requirements.
Venture Capital Investments are made by Venture Capital Firms in the form of cash in exchange for company shares the Firm is investing in. Holding company shares mean investors can exercise part-ownership in the company’s management.
Wealthy individuals or Institutions with large quantities of available capital invest their money in Venture Capital Firms through funds organised as fixed-life partnerships. Partnerships are classified as General (Venture Capitalists) and Limited partnerships and usually last for 10 years. Venture Capital Investments are made towards companies with high growth potential within 5 to 7 years.
Venture Capital Investment and Venture Capitalists
The General partners of a Venture Capital Firm, or Venture Capitalists, are either specialist or generalist investors. Venture Capitalist investors are determined by the investment strategy they follow.
A specialist investor will make Venture Capital Investments in either one or more specific industry sectors, or invest in regional businesses.
A generalist Venture Capitalist will invest in diverse industries and various companies in different geographic locations. Generalist investors may also make Venture Capital Investments towards a company in various stages of its development.
The common factor in all types of Venture Capital Investments is that the Venture Capitalists assume the role of an active investor. Venture Capitalists are typically teams of professionals with impressive business experience and training, with a vested interest in leading and guiding a company towards its growth. Their expertise is exceedingly valuable and helpful to a company’s management and production work. In truth, a Venture Capital Investment is neither a liquid investment nor a short term funding. It is, in fact, an investment that requires expertise and careful diligence from the Venture Capitalists.
Where required, Venture Capitalists form collaborations between companies they have invested in. This usually means bringing two or more companies with related, yet complimentary services, together. E.g. a software company may synergise with a company with good distribution technology; each will compensate for services the other lacks.
Venture Capital Investment Focus
A Venture Capital Investment is not restricted to a start-up business only. A company may apply for capital funds at various stages of its business. There are Venture Capital Investment funds that are diversified and invest in various industries like software, construction, semiconductors, business services, restaurants, industrial products, retailing, etc. Yet others invest in more specialist projects, and usually “socially responsible” businesses.
The nature of a Venture Capital Investment will depend on the type of company and at what stage of the company’s business cycle it is funding:
Venture Capitalists can make “seed Venture Capital Investments”, or invest capital before a company is formed or its product launched.
Venture Capitalists can make “early stage Venture Capital Investments” and provide financial support to a company at its start or second stage of development.
Venture Capital Investments can be made as “expansion stage financing” towards companies who wish to expand beyond their present capacity and achieve more success.
Venture Capitalists may invest in a company and support it throughout its business life cycle. Some portion of capital funds is secured for future investment towards the company’s growth, and expansion to a critical mass, to attract stock offering public financing. Alternatively, by attracting an acquisition or merger with another business, Venture Capitalists can help a company liquidate and provide exit for its founders.
Some Venture Capital Investments specialise in turnaround, acquisition or recapitalisation of private and public companies that offer favourable business and investment opportunities.
Venture Capital Investments focus on a company’s growth for approximately 3 to 7 years before capital funding is withdrawn. Depending on the kind of business a company has just started, the Venture Capital Investment will take 7 to 10 years to mature. If a company has applied for funds at a later stage of their business, capital investment may mature in a few years.