Venture capital is financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks and any other financial institutions. However, it does not always take a monetary form; it can also be provided in the form of technical or managerial expertise.
Though it can be risky for investors who put up funds, the potential for above-average returns is an attractive payoff. For new companies or ventures that have a limited operating history (under two years), venture capital funding is increasingly becoming a popular – even essential – source for raising capital, especially if they lack access to capital markets, bank loans or other debt instruments. The main downside is that the investors usually get equity in the company, and, thus, a say in company decisions.
Features of Venture Capital investments
Step 1: Idea generation and submission of the Business Plan
The initial step in approaching a Venture Capital is to submit a business plan. The plan should include the below points:
Step 2: Introductory Meeting
Once the preliminary study is done by the VC and they find the project as per their preferences, there is a one-to-one meeting that is called for discussing the project in detail. After the meeting the VC finally decides whether or not to move forward to the due diligence stage of the process.
Step 3: Due Diligence
The due diligence phase varies depending upon the nature of the business proposal. This process involves solving of queries related to customer references, product and business strategy evaluations, management interviews, and other such exchanges of information during this time period.
Step 4: Term Sheets and Funding
If the due diligence phase is satisfactory, the VC offers a term sheet, which is a non-binding document explaining the basic terms and conditions of the investment agreement. The term sheet is generally negotiable and must be agreed upon by all parties, after which on completion of legal documents and legal due diligence, funds are made available.
There are various exit options for Venture Capital to cash out their investment:
The various types of venture capital are classified as per their applications at various stages of a business. The three principal types of venture capital are early stage financing, expansion financing and acquisition/buyout financing. The venture capital funding procedure gets complete in six stages of financing corresponding to the periods of a company’s development
Venture capitalists are individuals or companies who provide investment capital and management expertise to new businesses. In return, they will ask for an equity position in the company, usually in proportion to their risk and the amount of their investment. They have a stake in your company because their future returns are tied to its performance.
Venture capitalists effectively buy their way into the company with their investment. That means that the company will not have to repay the capital; rather, venture capitalists expect to take their return in capital gains. The company will have a sizeable amount of money to work with, while the venture capitalist takes an active role in managing the company to ensure it success. After all, the venture capitalist has just bet a great deal of money that your company will be a winner.
A venture capitalist must be seen as a partner. His or her active management participation may occur through membership on the board of directors, or through input into other management decisions. The venture capitalist's goal is a high (30-40 percent per year) return on the investment over the period of his or her involvement, which is typically four to seven years. This means that the company must follow an aggressive growth strategy.
The resources and expertise of a venture capitalist not only bring money without the requirement of regular repayment by the company, but also provide several other less tangible benefits. The venture capitalist shares a common desire for success with you, and should not be thought of as a lender. He or she contributes expertise, experience, contacts, and discipline. The presence of a venture capitalist also lends credibility to the company.
A venture capitalist typically has a preferred industry, region of the country, investment size, and stage in a company's development. Attorneys and accountants can often refer you to venture capitalists they know or have worked with. Extensive information about individual venture capitalists is also available on-line. Once you find several candidates, it is advisable to research them thoroughly, including their past performance record and any referrals and recommendations from past clients.
Ideally, your first meeting with a venture capitalist should occur after you have been introduced by a mutual contact that can vouch for you and your company. This referral can enhance your company's credibility, and your chances. You will need to make your proposal at this meeting, so you should consider carefully what you will say, and rehearse it. You will need to impress the venture capitalist that he or she can help your company grow, and that it can make money for him or her as well as for itself.
I am very pleased with the project you have done, and especially your commitment to providing a quality solution when it meant going the extra mile to do so.
WE WORKED WITH THELEGALBANK TO REGISTERED OUR COMPANY Protocloud Technologies PVT. LTD. THE COMPANY IMPRESSED US WITH THEIR SERVICES.
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