The Basics –
A lot us have ideas, but the real challenge is turning ideas into a reality. There are a lot of opportunities in business. However, earning money is as difficult as finding money. No one really wants to be a cubicle drone. But without any capital most of us become regular employees.
There are many ways to start a business. If you have a great idea that has big potential, there are ways to access funds for your business. Venture capital funds are just one source of seed capital for your start up company.
Venture capitalists invest in start up companies with big potential and high growth. They like high technology companies that may lead to big returns in the long run. The downside of seeking venture capital funding is that the venture capitalists get a share of your company and have a say in the company’s decisions. A person who has always dreamt of owning and running their own business may find this uncomfortable.
The low down on Venture capital
There are some venture capitalists that provide financial services to start up companies. These are usually companies that are entirely new, with mostly an idea and a business plan in their hands. Venture capitalists are willing to make risky investments on businesses that banks and the capital markets are afraid to make.
Venture capitalists are general partners that offer only limited partnership to a company. The general partners are usually executives from a financial firm. They have the ability to provide a large amount of capital. These funds are usually derived from pension funds, foundations, insurance companies, financial endowments and financial institutions.
Venture capital may seem a very good idea to a startup company but there is downside to this. In the business world nothing is free. General partners often require 20% of the net profit of the company. They may also demand a 2% management fee every year.
It’s not easy to attract venture capitalists. They often have strict requirements. They will not invest in companies that don’t have reasonable proof of their technology. They may agree to meet with you, but that does not mean you’re already on good terms. Most of time 99 business plans get rejected out of 100. They can reject your plan for a lot of things that may seem trivial. And the hurdles don’t stop there.
General partners may help your company to jumpstart and expand. But they won’t just let you make the decisions when they have invested a lot of money in your company.
In some instances this may lead to problems, especially when general partners only care about making money for themselves. They may invest in advertising but not in the right places for your customers. Some of them like to spend too much money and the sudden growth may be too fast for your company.
Before you find yourself a venture capitalist make sure you are aware of their potential impact on your company. A venture capital fund may seem convenient at the time. But you should always look ten steps ahead. Look for a general partner that will help your company grow, not just add weight to their own wallets.