The primary sources of venture capital funds for a business firm are preference capital, equity capital, term loans, and debenture capital. Equity capital symbolizes ownership capital because equity shareholders cooperatively possess the company. They benefit from the rewards, as well as accept the threats of ownership. Nevertheless, unlike the partners in a partnership concern and the liability of the owner in a proprietary firm, their liability is restricted to their capital contributions. As equity capital funds signify permanent capital, there is no liability for reimbursement. It augments the creditworthiness of the firm. Generally, the larger the equity pedestal, the higher the ability of the company to acquire credit.
According to Scott Tominaga, accessing wealth through venture capital funding has become almost an art form. There are industry definite firms and there are firms that concentrate on a particular country, region or continent. Although you want to get in touch with as many prospective investors as possible, it is good practice to do your preparation and research first, then contact several potential investors. Similarly, it does not make logic to send an administrative summary and then spend valuable time or hours making follow-up calls to venture capital firms that only fund biotech or technology companies if your company is in the retail business.
Over the years, the terms ‘private equity’ and ‘venture capital’ have become intertwined and blurred. Many people consider that venture capitalists got tagged with the designate ‘vulture capitalists’ and decided to begin using the less unpleasant name, ‘private equity investor’. Nevertheless, who would you rather gets funded by a private equity firm or a vulture capital firm. However, venture capital more often speaks about funding provided to start-up companies or very infantile companies, while private equity refers more to funding provided to more well-known companies or companies seeking mergers and acquisitions or in a growth stage.
When applied to these start-up or young companies, venture capital funding is very costly since the company likely has very little income if any and possibly needs the financing to endure. If that is the condition, certainly the investor is going to utter some very challenging terms and necessitate a large piece of equity in your company because of the high risks caught up. Looking at the condition from another standpoint, if your company is in no position to negotiate and continued existence depends on that financing, then you would be imprudent not to take the financing. As Scott Tominaga says, management should try to evade the situation by raising capital well beforehand of when it will be looked-for. Bear in mind that when it comes to rising funding for a company, it generally take much longer to elevate than projected.
There are some things you can do to permit your management team to summon up some of its equity, such as a recoup. This permits you to purchase back a small portion of the equity the investor purchased if management is able to strike definite milestones in terms of net or gross revenues.