What is Venture Capital?
The venture capital is financing company which offers financial support to start-ups or small businesses to set up their business with a long-term growth plan. For small business and startup companies, venture capital is an essential option to source finance. Although the risk of investing in startup companies is pretty high the downside of the startup is venture capitalists have the right to control the company decisions.
Angel Investors and Venture Capital Firms
The financial support provided to small business and startup companies by venture capital is done by the high net worth individuals (HNWIs) who are also called ‘angel investors’ and venture capital firms. The association of venture capital companies composed in the form an organization is known as The National Venture Capital Association (NVCA). The NVCA offers financial support to new innovations and entrepreneurial ventures.
Angel investors are individuals who have gained wealth from different sources, and the majority of them are early retiree executives or entrepreneurs of company/empire. The investors who have self-made capital have key characteristics. Most of them invest in the companies which are properly managed, fully developed, and have a significant growth plan. The investors are also interested in offering to fund the companies which belong to their segment or industry o specialties which they are from. Another common scenario of angel investors is co-investing, where one of the angel investors is funding a venture alongside a trusted friend or associate, often another angel investor.
The Venture Capital Process
Primarily any company looking for venture capital needs to submit a concrete business plan to the venture capital company or an angel investor. If the business plan submitted by the start-up is interesting and surpasses the investigation business model, products, management and operating history, and various other things by the venture capital company then the plan is may be accepted in exchange of equity in the company. The investing company or angel investor takes an active role in the funded company. As the financial support is provided in different rounds, it is ensured that the funded company is achieving certain milestones before another round of capital. After few years of the initial period around 4-6 years, the venture capital company moves out of the company through a merger, acquisition or IPO.