Everything You Always Wanted To Know About Venture Capital Or Risk Capital and Collateral-Based Financing Provided By Venture Capital Firms

Venture capital or risk capital investment provided by a wide variety of venture firms can be defined as the provision of early-state financing for growth and developing companies. It typically involves taking an ownership interest in a business in the form of a direct purchase of stock or equity share.

The majority of venture capital firms that put up risk capital or venture capital money require active, ongoing involvement in the business usually from five to ten years for their investment to provide a significant return.

In the financing capital arena, the stage of growth determines what funding is most needed for working capital, equipment purchases, further expansion, debt restructure, or acquisition of shareholder interest. Companies at any of the following stages of growth are generally regarded as risk or venture capital candidates:

Seed capital phase - Typically perceived to be more risky. The entrepreneur has developed a new process, service or product. Typically no formal organizational structure is in place. A select venture capitalist participates at this research and development (R&D) level;
Start-up phase - The company is planning to organize or has been organized for a short time and is beginning to produce and sell its products or services. It may or may not be profitable and needs additional capital to continue its growth;
Expansion phase - When your company is still small but has a favorable operating history. Financing is needed to increase plant capacity and/or working capital due to growing sales;
Buy-out phase - Here financing is needed to make an acquisition of a company or to liquidate the venture capitalist's position.

Venture financing is provided once an examination of the project has determined feasibility; marketability; personal commitment by the entrepreneur; future growth potential; management, marketing, manufacturing and technical expertise to execute the project; legal protection such as patents; high priority attention by management; financial return; and the projected number of new jobs to justify the investment.

Today, a select group of venture capital firms provide certain credit enhancement to back up entrepreneurial ventures. This allows the entrepreneur who otherwise may not qualify for a conventional funding to funding from his own bank with ease. To learn more about the players and how the market works, click here for our free newsletter, and sign up for our consultation services.

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P.O. Box 402, Worcester, Mass 01613
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