WHAT IS VENTURE CAPITAL?

Venture capital, or private equity finance, is capital provided for high-growth businesses in the early stages of development. These businesses must already be trading (venture capital funding isn’t normally used for start-ups) and must have the potential to offer huge returns.

Venture capital is usually sought if the investment required is more that can be raised through banks, friends/family or business angels. It’s often known as risk capital because of the huge amount of risk involved – venture capital is unsecured, and repayment depends on the profitability of the business.

Rather than a loan, venture capital funding is a long-term investment that is offered in exchange for a share in the business. It usually comes with an element of ownership or control, where the investor has some say in the business and brings experience and expertise to help to make a success. It’s usually repaid through profits and dividends rather than set monthly amounts, and isn’t subject to interest as a traditional loan is.

Venture capital is provided by venture capitalists. These can be wealthy individuals and entrepreneurs that have amassed fortunes of their own, or firms that invest on other people’s behalf. They may operate individually and invest their own money, but more often than not they work in networks or companies – venture capital firms that can provide high-risk investments to businesses in all sectors of the market.

For venture capital to be a viable option of raising finance, your business needs to at the stage where a large amount of funding is required. Venture capital isn’t offered to start-ups or small time businesses, but to those that are appealing to an investor and that offer a huge amount of growth and potential. Ultimately, the aim of venture capital is to provide financing for businesses that can eventually generate the biggest return through take-over or sale of the company.