Tuesday, December 13, 2011
Venture Capital for Dummies...
An excerpt from VentureTactics.com (Source)
When an investor buys a part of a company this is known as venture capital. Someone who invests money into a company that has high risk and a high growth rate is known as a venture capitalist. The investment time period usually ranges from 5 to 7 years. In order for the venture capitalists to receive a cash profit from the company he or she will publicly sell shares of the company or will receive a return on his or money when the company is sold.
Some venture capitalists ask to be seated on the director’s board rf may ask to be given a certain percentage of the equity that the company has. All venture capitalists expect to make a hefty return on any money he or she invests. A venture capitalist can demand a payment of owed money by demanding the company be sold, or by asking that his or her venture be returned, or by changing the terms of the original deal.
DIFFERENT TYPES OF VENTURE CAPITAL INVESTMENT
A type of capital venture investment that includes seed financing, start up financing and first stage financing is known as early stage financing. An inventor who wants to start up a new business is given a minute quantity of venture capital, which is known as seed financing. A venture capitalist will use this financing to develop a business plan, to construct a management team, and/or to implement market research strategies.
When a business is operated for less than a year and receives venture capital they are known to be receiving start up financing. This usually entails that their product has not been sold commercially, but with this type of venture capital they will become prepared to do so. When a business wants to carry on and enter into the public business area they receive first stage financing; they also receive this type of financing when they are wishing to increase their capital.
Expansion financing is also another type of venture capital investment. Within this type of venture capital investment are second and third stage financing. When a company is already up and going they receive the investment called second stage financing. Third stage financing is used when a business is planning to break even or become profitable in the near future. Bridge financing is also included in expansion financing. This type of financing is short term and an interest only investment.