Funding Organizations for Bright Ideas - Venture Capital Firms

Obtaining the necessary capital for start-ups has become a more difficult process

, due to a whole host of reasons deriving from the world financial crisis. For those ventures that have already exhausted personal savings, loans from relatives and acquaintances and that have very small chances of receiving bank loans, there are alternative sources of capital that can be considered. One of these useful sources is venture capital.

What is Venture Capital?

Venture or seed capital is used to help businesses with a high growth potential and it comes from groups of investors with liquid assets forming profesionally managed firms. These firms have small teams of specialists with technology backgrounds, industry experience and business training. The funds represent pooled investments with multiple sources, such as wealthy individuals and institutions. state and private pesion funds, insurance companies, mutual funds.

What Do VCs Expect?

Investing in an early-stage company, that is, an unproven business venture, with no profit history, is very risky and highly speculative, therefore only companies with significant potential for growth are funded. In exchange for the capital provided VCs expect high rates of returns from their portfolio companies. They also require a certain degree of control over the venture, such as a seat in the board of directors, a percentage of equity ownership and payment of assorted fees. Important corporate decisions cannot be made without the investors' approval.

What Are the Advantages?

These business investors provide the necessary amount of money for early stages of development in a company's life cycle, when the chances of accessing more traditional sources of capital are very low. Besides providing funds, Vcs also get actively involved in the enterprise with management assistance whenever necessary, as they have gained expertise with other successful companies in their portfolio. Another advantage is the access to a network that may help increase the company's credibility and transform it into an important industry player.

What Companies Benefit From VC funds?

Due to the high risks posed by new ventures, VCs are very selective in choosing where to invest. They prefer companies that closely match their area of expertise and have the highest return on investment potential. When an entrepreneur decides to contact potential investors, being referred by acquaintances or using a venture capital database, the key points in the selection made should be industry preference, geographic area and business stage preference.

What Are the Steps?

The implementation of the innovative idea should be detailed in a business plan that describes the company's strategies and goals. An executive summary of the business plan should be sent as a formal proposal. Only after analyzing the proposal representatives of funding organizations will accept a face-to-face meeting in the form of a pitch, provided that they become interested in your business idea.

Besides helping small businesses grow, venture capital is usually associated with innovation within an economic sector or geographic area as well as with job creation.

Funding Organizations for Bright Ideas - Venture Capital Firms

By: Len Williams

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