For any type of business, finding funding is hugely important. True, some businesses are more capital intensive than others, but some amount of money is a necessity for just about any business venture. However, securing financing is sometimes easier said than done.
Some new businesses sometimes have trouble securing business loans,
due to their limited credit history. Others would prefer to avoid
traditional means of financing.
Venture capital is a popular alternative to traditional business
financing methods. But, what is venture capital funding? How does it
work? And, is it right for your business?
In It to Win It
Venture capital firms are in the business of
profiting from investing in promising businesses during their formative
stages. Many venture capital firms specialize in investing in businesses
in a specific industry, but there are plenty of venture capital firms
out there, so most businesses should be able to find a source of venture
Advantages of Venture Capital Funding
If the business succeeds, then venture capital
investors stand to profit handsomely. If it fails, they lose their
investment. That’s the calculated risk they take on when making an
Businesses that secure financing via venture capital firms are not
under any obligation to repay the funds, should the business fail. This
is in contrast to a business loan, which must typically be repaid by the
business owner, even if the business fails to become profitable.
Securing funding from a venture capitalist can be a great way to
build a business’s network of contacts. Most venture capitalists are
well-connected in the business world, and businesses that they invest in
stand to reap the benefits of their extensive connections.
New businesses may also benefit from the guidance of venture capital
investors, who tend to come from successful entrepreneurial backgrounds,
often in the industries in which they are investing.
Businesses financed by venture capitalists stand to grow more rapidly
than businesses that must wait until their revenue will support
expansion. With a stockpile of extra capital on hand, businesses can
afford to scale up rather quickly.