Venture capital is basically a type of private equity funding that is offered by venture capital companies or funds to newer, emerging, and often privately owned businesses that have been deemed to possess high potential for growth or that have shown very promising growth over a certain period of time. Ventures need venture capital as they normally need an initial investment of cash to finance their business operations through the use of credit facilities such as personal loans or debt. They also require a potential source of regular flow of cash from their clients, so they can keep operating. While most venture capital companies do not make themselves known to clients, they typically operate in the background, providing funding, advice, and general support on key business decisions. When they are first founded, they will typically be a small company with few employees and limited resources.
Angel Investors are groups of individual private investors who provide capital to small businesses in return for a percentage of the total proceeds. Typically, the people who an angel investor chooses to invest in small businesses come from their own networks of high net worth individuals. For example, an individual investor could contact a group of wealthy friends and relatives who have an established track record of supporting high net worth individuals and businesses. Other times, an individual investor could obtain a loan from a large bank or other financial institution.
Private Equity or Limited Partnership Funds are investment funds in which only a handful of investors typically participate. These investors generally control a very small, or even a small number of shares of a firm. These investments can be made directly or through an intermediary like a venture capital firm. Many venture capitalists also participate in other types of investments, such as real estate and asset management, as well as a variety of public and private commercial ventures. Most venture capital firms also work with other finance groups, such as commercial banks, mortgage banking groups, and investment firms.
Private equity firms can also work with international investment firms. Many international venture capital investment firms are located within the United States. In recent years, international VC firms have begun to expand their U.S. presence, due to the fact that the United States is now home to a large number of technology and manufacturing companies. As a result, more high net worth individuals are able to access venture capital funding opportunities, creating a greater demand for U.S. accredited investors.
Venture Capitalists participates in financing new companies through two primary methods. They typically fund new companies directly with private investment capital, sometimes via local equity funds and / or utility company loans. They also fund new companies via a franchisee arrangement with existing companies. The benefit to franchisee arrangements is that the new companies are often focused on a strong market niche with a proven product or service, which allows for an easier application of credit terms from existing lenders.
To obtain new companies considered for capital financing, it is important to have a well-written venture capitalist agreement. This document clearly identifies the type of funding involved, the anticipated return on investment and the terms of repayment. It should be drafted by an attorney with experience in these types of financing. Additionally, it should include an accurate assessment of the market or niche for the new company and the expected revenue stream. If the venture capitalist intends to invest directly with an individual investor, this document is essential to protect the interest of the venture capitalist and to prevent other individual investors from investing in the new companies without having an accurate understanding of the company’s business model or operations.
