How is venture capital different from traditional financing?
Venture capital is a new form of funding that has become at the heart of young entrepreneurs and plays a strategic role in financing small businesses and high-tech companies. In all developed and developing nations, it has made its mark by providing equity capital, so that they are more similar to equity partners rather than financiers and that they benefit from capital gains.
As young and growing businesses need capital at the right time, not only to float their business on the market, but also to survive in the long run. When financial institutions such as banks and other private financial organizations are reluctant to take the risk of early financing, because the credibility of the grass society is not established, venture capital enterprises are intended. to finance the project in the form of equity that can be described as “high-risk capital”.
Although there is a misconception that the interest of venture capital companies is mainly motivated by state-of-the-art technology, this is not always the case with all venture capital companies. A venture capital associates a high risk with enormous profits. Of course after a careful analysis of the prospects and consequences and the viability of the project. Venture capital becomes a partner with the entrepreneur of his company. The financing of true venture capital should not be limited to high-end technology products, any risky idea with great potential can be funded and venture capital is a powerful mechanism to promote and institutionalize entrepreneurship.
Mainly, venture capital focuses on growth. A venture capital is very interested in seeing a small business growing in a larger. He attends the establishment of the company, to finance it and to move to the seethe countryside. In the case of a potential equity participation, the venture capital may come out of the partnership once the company becomes profitable and resumes its money by selling the shares or the convertible titles. If the company opts for a long-term investment in venture capital financing, the financing must develop a long-term investment attitude, according to five or ten years to allow the company to make great profits.
Another form of funding is that the venture capital has its hands on the direction by which it becomes an active participant in the operations of the company and his thought is streamlined on how to multiply and make quick money, What is a win-win situation for both sides. Not only funding, venture capital also contributes to marketing, technology upgrading and management skills for the benefit of the new business.
The risk capital management approach is significantly different from a banker whose primary concern is the guarantee and the titles in the form of assets. He keeps his hands of management and plays safely. Either the venture capital can not behave as a stock market investor who invests money without having a thorough knowledge of the company’s activities and management. It combines the qualities of a banker, a stock market investor and an entrepreneur in one.
The last trend is that popular and giant software companies promote their contents in grass businesses, providing the latest technology, training and expertise outside the final, which distributes the geographic area of the operations of the parent company and also expand their territory at the higher level. Heights. Venture Capital Companies should focus on promoting the growth and development of the company and do not need to limit their interests only to finance technology, infrastructure, information technology services etc. . They must diversify their investment in various sectors and even the rebirth of illness units can be considered as one of the options if there is potential in the business.
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