Features of Venture Capital Investment

Anand Jayapalan

A fledgling, high-tech business that is still in its early stages of funding and is not essentially ready to sell off securities to the general public might look for venture capital. Earlier, Anand Jayapalan had spoken about how venture capital firms offer high-risk capital in the form of long term equity financing for obtaining a high rate of return, especially in the form of capital gains. Such venture capital firms offer business owners with the capital they need.Β  They invest in a firm till it reaches a major position prior to selling it off.Β  In an ideal landscape, investors would put funds into a business for two years and receive returns for the next five. The expected ROI can go up to ten times that amount.

There can be multiple sources of financial venture capital, such as:

  • Firms that invest in venture capital
  • High-net-worth individuals (Angel Investors), etc
  • Investment banks and other institutions of finance

Venture capital companies establish venture capital funds, which imply to collection of funds from other businesses or investors. Here are some key features of venture capital investment:

  • New Ventures: Venture capital ideally invests in startup firms that make use of new age technologies and practices to deliver improved services or innovative products. The prime goal of venture capital is to achieve rapid growth and enjoy significant returns.
  • Hands-on Strategy: Investors in venture capital take an active interest in the firms they back. Usually, venture capitalists offer a range of services to these firms, including technical and managerial skills. They, however, do not obtain a majority or control shareholding, and meddle with the daily operations of the business.
  • Fund Representation: Companies tend to explore a variety of sources of funding to meet their financial requirements, and use the money as necessary while avoiding the need to make sudden financial changes. Venture capital is a pool of money most prominently used to start new businesses.
  • Ongoing Participation: Apart from investing in their companies, venture capitalists also mentor their client’s businesses to help them achieve greater success.
  • Purpose: The prime goal of a venture capitalist would be to realize a capital gain at the time of exit. The basic purpose of providing debt finance is to enjoy consistent profits. It is a form of a long-term capital investment specifically made for new small and medium-sized businesses with significant growth potential.
  • Liquidity: The liquidity of the venture capital investment would depend on the viability of new initiatives. If the company becomes successful, it will be very liquid.
  • Mode of Investment: While being a form of equity financing, venture capital focuses on companies that are too young to raise money on the stock market. This kind of funding makes sure that the investment portfolio of the venture capitalist displays a consistent yield, and may take the form of debt securities or loan financing.

To wrap up, venture capital is known to provide funding to new businesses that do not have access to stock markets and do not have enough cash flow to take on debts. Earlier, Anand Jayapalan had mentioned that this arrangement can be mutually beneficial as it enables businesses to get the capital they need to bootstrap their operations, while investors gain equity in promising companies.

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