Venture Capital

Venture capital is the funding provided to a startup company in early stages. Those who decide to invest in business venture capital usually take into consideration the high potential of the startup company. Usually, seed funding comes first and business venture capital follows. The venture capitalist is the person finding a new company which is likely to grow and develop fast, but which presents high risk. What such investors hope for is their funding to return to them with profit either when the company is sold or when it starts selling shares to the public. In all cases, business venture capital investors expect to receive a good return of their investment. Practically there are three kinds of different venture capital investments: early stage, startup and first stage financing. The early stage funding refers to seed financing and also to startup and first stage financing. While the seed financing involves transferring capital to someone who wants to start a business, the startup financing makes reference to the money invested by a venture capitalist in a business younger than one year. This is before the product or the service has been sold on the market. One step further is the first stage financing: this means investing capital to allow a young business to expand and function as a proper business on the market.

However, expansion financing has a different meaning: it covers the second and the third stage financing of a new business. The second stage is before the new company has any profit at all, but its accounts grow in numbers and value and the third stage is when the new business actually becomes profitable. In acquisition financing the venture capitalists use their investment to buy a certain percentage of a new business or even all of it, regardless of whether it is a private company or a public company. The fourth stage of the startup company assisted by the venture capital investor is called bridge financing and it refers to investing so as the startup company can actually go public. In order to draw the attention of venture capital investors upon themselves, a startup company needs to have a good and promising business plan, a team of managers that inspires confidence, some investment from its founders. Also, the returns estimated had better be more than 40% each year. In addition to that, what venture capitalists seek is a way to exit that particular investment before the end of this cycle. Because great returns are needed, it is big, solid companies with a lot of capital available to use, that make such venture investments. The startups are usually companies dealing with technology and biotechnology. Venture capital investors are usually limited liability companies and several types of partnerships.