Some Facts About Venture Capital Funding

By Roger Brown

Looking for resources to start up a new company is really hard even though one is talented in a certain field and can have the potential to create a boom in the market. This is especially true for young entrepreneurs who are talented but do not have the means and the access to the equity markets or other resources. So the best thing to do would be to get venture capital funding for their projects instead.

Now, most people may confuse this type of funding company with private equity companies. Well, they essentially do the same thing in a sense that they invest in companies that need funds. However, the difference is that ventures fund small, startup companies while private equities would fund the bigger and more established companies that have track record already.

Firms that engage in this type of investment would usually bet big on the startup businesses that can grow big as these types of companies usually shoot up in value if managed well. Unlike more established companies, small startups that make use of a new and revolutionary idea are either make or break. If it makes, then it makes really big.

Of course, there is a catch to this kind of deal. The catch is that the ventures would demand a lot of equity meaning they would usually hold the majority shares of the company along with the founders. With that, they would actually have a say in some of the activities that go about in the startup company, especially in the important management decisions.

What the investors would do is that they would create shares that are sold to very few investors through what is known as a limited partnership. Since the limited partnership is created by the venture capital firm, they control who invests. In that sense, they actually control the entire corporate structure of the startup company instead of the founder.

So in other words, the entrepreneurs will get a big amount of money for the projects they would like to do. The catch is that the investors have more control over the startup than the owner alone because they are coming out with the biggest risk. The biggest risk of founders is that they might get kicked out of their own companies if the investors see that the losses are too much for the founders to handle.

Currently, most of the ventures these days put their money in the tech companies since technology is rapidly advancing and new technology is always welcome. Of course, there are so many talented young people who have the computer skills needed to shake the world but do not have the funds to do so. So if one is willing to take the risk, then the rewards are definitely big for the taking.

As one can see, it is much easier to access funds from ventures than from bank loans or private equities. The risk would be that the control will no longer be in the founders and the founders may be booted out of the company. If the founders are that confident in their abilities though, then they should have no problem coming out on top.

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