Venture Financing:

Debt vs. Equity

What Is Venture Capital?

A Long Term Equity Capital Invested in New or Rapidly Growing Enterprises

By Venture Planning Associates, used by permission

Venture Financing Gestation Stage Inception Stage Prototype Roll-Out Stage Growth Stage Expansion Stage Maturity Stage Founders: Bootstrapping Methods Business Angels Corporate Investing in External Ventures Venture Acquisitons IPO Venture Capital Firms Dealing with Banks 1000ventures.com Venture Management Venture Financing Chain

Venture Financing

Make your project attractive to investors! 

Venture Capital is long term equity capital invested in new or rapidly expanding enterprises, and is the lifeblood of America's entrepreneurs.  Traditional debt financing is not always available to start-up and other emerging enterprises because they generally lack the collateral, track record, or earnings required to get a loan.

Most entrepreneurs seek initial "seed" capital from family members or wealthy individual investors, often referred to as "business angels," who are willing to take the risk associated with start-ups.

 

This informal venture capital community finances the vast majority of new enterprises and plays an invaluable role in the entrepreneurial process. The most visible venture capital money comes from professionally managed venture capital firms. These firms are funded by an informal network of investors that include: pension funds, insurance companies, endowment funds, foundations, bank holding companies and their affiliates, corporations, wealthy individuals, foreign investors and the venture capital professionals. Venture capital professionals in this respect are the primary agents between capital sources and new enterprises.

Venture capital professionals are essentially managers of risk.

 

They assess hundreds of business plans each year and invest in the most promising ventures, then become actively involved as strategic managers. They invest a combination of equity and expertise in several different ventures; usually in cooperation with other firms; to diversify the risk associated with venture investing. The returns realized by the venture capital process have attracted funds from institutional investors, and as a result the resources available to young growth companies have expanded significantly.

Venture capital was instrumental in the success of companies like Cypress Semiconductor, Apple Computer, Intel, Amgen, GenenTech, Solectron, Cirrus Logic, Federal Express, Au Bon Pain, Gymboree, Brookstone, The Sports Authority and more.

Venture capital organizations are generally privately held partnerships or corporations that invest alongside management in young, rapidly growing or rapidly changing companies. They invest large quantities of long-term risk capital, usually seeking capital appreciation rather than cash repayment.

While venture capital organizations have historically been concentrated in New York, California and Massachusetts, today venture capital professionals and their portfolio companies are located throughout the country.

Unlike other financial intermediaries, venture capital professionals add value to their investments by actively participating in the management of their portfolio companies. They function in a dual capacity as financial partner and strategic adviser, providing the entrepreneur risk capital to fund the venture's growth and expert business counsel to ensure the enterprise's survival and competitive positioning in the marketplace.

 

Venture capital professionals come from all walks of life.

  • Former Corporate Managers

  • CEO's

  • Investment Consultants

  • Engineers

  • Scientists

  • Entrepreneurs who have launched ventures of their own

These individuals provide an important source of expertise for the emerging companies they finance. They know individuals in banks and brokerage firms, attorneys, accountants, and others needed to help new companies succeed.

The balance of talents in the close relationship between entrepreneur and venture capital professional has been a crucial element in the success of emerging ventures.