Venture Capital Investors

What is venture capital?

Venture capital is the risk sharing equity capital provided by the venture capital investors to the short or medium enterprises and start-up businesses to take off the ground and make productive research and development in the new innovative technologies. There are over 170 private equity and capital venture firms in UK providing capital to the SMEs and start-ups.

What are venture capital investors?

Venture capital investors are the individuals or the firms and trusts which provide funds to the SMEs and start-ups to grow and compete. Venture capital investors own a part of the invested company in lieu of the investments and seek non- executive position in the board of directors. Venture capital investors have increased in number, thus organizing themselves into firms and networks. Venture capital investors make a highly risky investment where the returns received by them depend upon the growth and profitability of the invested company. Venture capital investors not only provide the capital funds to the invested company but also their experience, knowledge, contacts and precious advice.

Three types of venture capital investors:

Private sector venture capital firms
Public sector venture capital organizations
Angel investors

Types of venture capital investments made by the venture capital investors:

Venture capital investors make three types of venture capital investments depending upon the need of the businesses.

Early stage financing by venture capital investors- this type of financing by the venture capital investors has three sub divisions; seed, start-up and first stage financing.

Seed financing by venture capital investors Here the venture capital investors provide the company with the finance to invest in market research, building up the effective and competent management team and making the effective business plans.

Start-up financing by venture capital investors This type of financing is provided by the venture capital investors to those companies which are less than one year old and need funds, to start selling the products and services in the market.

First stage financing by venture capital investors The venture capital investors provide the capital for the company to expand and make a mark in the public business.

Expansion financing by venture capital investors is again sub divided into three types:

Second stage financing by venture capital investors Here the venture capital investors provide capital to the company which is completely in the business and is growing but is not showing the profits.

Third stage financing by the venture capital investors The venture capital investors provide capital to the well grown company making profits. The funds are used by the company to increase the production or to acquire the real estate.

Bridge financing by venture capital investors The venture capital investors provide capital for the restructuring of the company.

Acquisition financing by venture capital investors is made to provide capital to the company to buy out another private or public company or buy another products, irrespective of the stage of growth.

Types of venture capital shares used by the venture capital investors:

Ordinary shares- these shares give the venture capital investors the pre decided share of the company which holds the same value as the company owner’s ordinary shares. The returns received by the venture capital investors are made up of the dividends and increase in the capital value of the shares. The company needs to negotiate on the ratio of ordinary shares obtained by the venture capital investors in return of the investment. The venture capital investors receive the dividends only when the company earns profits.

Preference shares- these shares earn the venture capital investors the dividends irrespective of the profits earned by the company. If no profits are earned in one financial year the dividends get accumulated and are given with the arrear to the venture capital investors

Debt- It consists of the loans, leasing and other borrowings which are secured against fixed assets which can be sold to make the repayments to the venture capital investors.

How to attract venture capital investors?

Do the business networking to bring the business into public notice and make people aware of the name of the company. Collect as many business cards to attract the venture capital investors. Network with the affluent businesses which have already received the fundings from the venture capital investors.

Do the promotion for your business through the print media, press conferences, online promotion to get the attention of the venture capital investors.

Present the crisp business plan to the venture capital investors to gain their confidence. Be ready with the market research, competitive analysis, operations plan, management summary, executive summary, industry background, environment analysis, short and long term goals and line of action to achieve those goals. Venture capital investors must feel reassured to make investment in the company with the strong, competent, knowledgeable and determined management team.

Do not over present the company in front of the venture capital investors. State the real market share of the company and its potential to make profits.

Do not waste the time of the venture capital investors by putting in tons of executive summaries for them to go through. Try to simplify the things for the venture capital investors by being to the point and putting forward the capital problems faced by the company and the potentials of the company.