Why venture capital is good

This should be a very thorough plan that can be used to convince a venture capitalist to invest in your company, but it also serves as the blueprint for your business and your path to success. There are many benefits of using venture capital financing to fund your business. These are just a few that you can enjoy through the process:.

Even with a lot of advantages that you can enjoy, there are also some disadvantages to consider before you dive into this method. These are the main ones to consider:. When you are trying to determine if it is the right option for you, you need to be very thorough in your examination.

You should consider whether or not you would be open to the active input of an investor. If you do not think you will be open to any feedback or suggestions, then this is not the right method for you. You should also consider whether or not you would be ok with losing some of the ownership of your company.

On the other hand, if you think that you need those resources and could benefit from the expertise that comes with an investor, then it would be a good option to consider. When it comes to venture capital, you need to decide if you would rather own your business completely or if you would like to have a larger and more successful business that you are not sole owner of but will be bigger and better as a result.

What Are Angel Investors? What Is the Venture Capital Process? Venture capital can come from the following sources: Individual investors with a lot of money Financial institutions Investment banks Other types of partnerships With loans and other types of debts becoming harder to obtain, venture capital is a very viable option.

Potential for Growth Investors also like ventures that have the potential for a fair amount of growth so that their investment can get a quality return. In the business plan, you should detail the following information: The basis of the business How you plan on running the business If you have any competitors and what they are currently doing How you will stand apart from other companies This should be a very thorough plan that can be used to convince a venture capitalist to invest in your company, but it also serves as the blueprint for your business and your path to success.

These are just a few that you can enjoy through the process: Financial backing — This is the biggest advantage for many startups and companies.

Without the initial financial backing, it may be difficult for a company to get off the ground. Beyond that, it can be difficult to grow at the desired rate. With financial backing, you can put your plan into overdrive.

Business expertise — By choosing to go this route, you often not only get the money that you need but you also gain the wisdom of someone or a group of people who have been doing this kind of thing for some time.

You can get guidance and consultation on various business decisions so that you can do the best for your company. With this kind of help, you will not have to make all of the same mistakes that they did when they were first starting out. This includes financial management so you can use the money more wisely than you would do on your own.

And inaugural fundraising continues to be slow this year. Comments: Leave a comment. Name Business email Website Optional Comment.

Thanks for commenting Our team will review your remarks prior to publishing. Please check back soon to see them live. Related content. Compensation typically comes in the form of status and promotion, not money. It would be an organizational and compensation nightmare for companies to try to duplicate the venture capital strategy.

Furthermore, companies typically invest in and protect their existing market positions; they tend to fund only those ideas that are central to their strategies. The result is a reservoir of talent and new ideas, which creates the pool for new ventures. For its part, the government provides two incentives to develop and commercialize new technology. The first is the patent and trademark system, which provides monopolies for inventive products in return for full disclosure of the technology. That, in turn, provides a base for future technology development.

Such seed funding is expected to create jobs and boost the economy. Although many universities bemoan the fact that some professors are getting rich from their research, remember that most of the research is funded by the government.

The newest funding source for entrepreneurs are so-called angels, wealthy individuals who typically contribute seed capital, advice, and support for businesses in which they themselves are experienced. Turning to angels may be an excellent strategy, particularly for businesses in industries that are not currently in favor among the venture community.

But for angels, these investments are a sideline, not a primary business. Downsizing and reengineering have shattered the historical security of corporate employment. The corporation has shown employees its version of loyalty.

Good employees today recognize the inherent insecurity of their positions and, in return, have little loyalty themselves. Additionally, the United States is unique in its willingness to embrace risk-taking and entrepreneurship.

Unlike many Far Eastern and European cultures, the culture of the United States attaches little, if any, stigma to trying and failing in a new enterprise.

Leaving and returning to a corporation is often rewarded. For all these reasons, venture capital is an attractive deal for entrepreneurs. Those who lack new ideas, funds, skills, or tolerance for risk to start something alone may be quite willing to be hired into a well-funded and supported venture. Corporate and academic training provides many of the technological and business skills necessary for the task while venture capital contributes both the financing and an economic reward structure well beyond what corporations or universities afford.

Even if a founder is ultimately demoted as the company grows, he or she can still get rich because the value of the stock will far outweigh the value of any forgone salary. By understanding how venture capital actually works, astute entrepreneurs can mitigate their risks and increase their potential rewards. Many entrepreneurs make the mistake of thinking that venture capitalists are looking for good ideas when, in fact, they are looking for good managers in particular industry segments.

The value of any individual to a VC is thus a function of the following conditions:. Entrepreneurs who satisfy these conditions come to the table with a strong negotiating position. The ideal candidate will also have a business track record, preferably in a prior successful IPO, that makes the VC comfortable.

His reputation will be such that the investment in him will be seen as a prudent risk. VCs want to invest in proven, successful people. Just like VCs, entrepreneurs need to make their own assessments of the industry fundamentals, the skills and funding needed, and the probability of success over a reasonably short time frame.

Many excellent entrepreneurs are frustrated by what they see as an unfair deal process and equity position. The VCs are usually in the position of power by being the only source of capital and by having the ability to influence the network. But the lack of good managers who can deal with uncertainty, high growth, and high risk can provide leverage to the truly competent entrepreneur.

Entrepreneurs who are sought after by competing VCs would be wise to ask the following questions:. And, unfortunately, many entrepreneurs are self-absorbed and believe that their own ideas or skills are the key to success. Moreover, every company goes through a life cycle; each stage requires a different set of management skills.

The person who starts the business is seldom the person who can grow it, and that person is seldom the one who can lead a much larger company. Thus it is unlikely that the founder will be the same person who takes the company public.

When the entrepreneur understands the needs of the funding source and sets expectations properly, both the VC and entrepreneur can profit handsomely. Although venture capital has grown dramatically over the past ten years, it still constitutes only a tiny part of the U.

Thus in principle, it could grow exponentially. Companies are now going public with valuations in the hundreds of millions of dollars without ever making a penny. And if history is any guide, most of these companies never will. The system described here works well for the players it serves: entrepreneurs, institutional investors, investment bankers, and the venture capitalists themselves.

It also serves the supporting cast of lawyers, advisers, and accountants. Whether it meets the needs of the investing public is still an open question. You have 1 free article s left this month. You are reading your last free article for this month.

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