Venture Capital
- Entrepreneurs need investments for their start-up companies.
- The investments or the capital that these entrepreneurs receive from wealthy investors is called Venture Capital and the investors are called Venture Capitalists.
- VC firms reduce the risk of investments by co-investing with other VC firms.
- Usually, there will be the main investor called the ‘lead investor’ and other investors will be called ‘followers’.
Type of Funding
Pre-seed funding
- Pre-seed funding is in the range of $100,000 – $200,000
- Funding provided when a startup is less than a year old.
- Supports R&D, Market Research.
- Recruit new members.
Seed Capital
- Funding will be in the range of $ 1million – $ 2 million
- Start-up company will need a product that will be viable in the market
Advantages of Venture Capital
- Banks usually prefer to finance a new business which has hard assets.
- In the current information-based economy, new start-ups hardly have any hard asset. Venture Capitalists step in under these circumstances.
- They can provide more insights into the market.
- Can help in strategy formulation.
- Can help in developing strategic networks
- Innovation and entrepreneurship are the kernels of a capitalist economy. New businesses, however, are often highly-risky and cost-intensive ventures.
- As a result, external capital is often sought to spread the risk of failure.
- In return for taking on this risk through investment, investors in new companies are able to obtain equity and voting rights for cents on the potential dollar.
- Venture capital, therefore, allows startups to get off the ground and founders to fulfill their vision.