Why Venture Capital
The Dilemma of Financing a Start-up Company
What is a Term Sheet
Venture Capitalists Definition
A venture capitalist is an investor who invests in risky startup businesses. The venture capital investor provides funding to an entrepreneur who may not have access to substantial bank loans
or other sources of capital. Venture capitalists also invest in small companies that are expanding, or private companies that are planning to go public. Venture capitalists will often want to participate in the decision-making of the business in which they invest.
Venture Capital Investor
The venture capital investor may be a wealthy individual, a group of wealthy individuals, a subsidiary of a large corporation, a group of investment banks
, a venture capital fund, or a venture capital limited partnership
. Venture capital investing is considered to be high risk and high yield, and the recipients of venture capital loans are typically small startup companies with great growth potential.
Venture Capital Funding
Venture capital funding is a source of private equity for startups, small expanding companies, and private companies that are planning to go public.
The startup business is usually at the earliest stages of development and may be little more than an idea and a business plan. Because the startup enterprise has no record of success, the venture capital investment is considered risky. In return for the venture capital funding, the venture capitalist typically wants high returns on the loan as well as a stake in the equity of the startup company.
If the recipient is a small expanding company or a private company planning to go public, they may not have access to substantial funding from commercial bank loans or capital markets. In any case, the venture capitalist can be a good source of funding when the business has few or no other alternatives.
Venture Capitalist Funds
Venture capital funds are pools of capital from various investors, such as wealthy individuals or investment banks, that are managed and invested in various startups or other risky enterprises. The funds seek investment opportunities with great growth potential. The venture capital fund is considered a high risk investment and investors expect to be compensated for the high risk with high yields.