Venture capital is a complex world that is often mentioned in business discussions, yet few people understand the difference in the financing programs or what the equity exchange may entail when a VC comes in with money. While financing from venture capital firms is more difficult than it once was due to extensive terms, processes, and closing issues that may arise, the money is there for those that know how to find it.
Investment criteria for venture financing focuses on future possibilities in high tech areas and stage qualifications for revenue and footing. With thousands of unsolicited business proposals crossing the VC’s desk each year, it is important to understand what type of sourcing program aligns best with your company and its needs. In that way, whether your business requires $100,000 or $100,000,000, you can more easily locate programs and companies that may be willing to help you find a solution to your venture capital sourcing needs. Here are some of the different funds available.
Business angels are individuals with enough wealth to invest money of their own in a business, corporation, or startup venture of their choosing. The investment often follows a path in the industry in which the angel has some expertise or experience. When angels come together as a group and form a syndicate, they also develop an established hierarchy with a lead investor known as a super angel.
Funds from medium investment groups that provide large amounts of money in order to garner a large equity return are known as venture capitalists. The groups gather like minded individuals to share risks and rewards for capital sourcing that include both private and public firms that are professionally managed. Since the funds are pooled into an investment, high risk options are sought to provide high returns; however, VC Don Gayhardt believes capitalists will become careful about future investments.
Seed funds are small ventures from individuals or groups that exchange the money for safe equity. This type of venture capital often focuses on many small investments rather than one large risk sourcing. Often seen as a mentor program, an accelerator for small businesses, or additional support to established companies, the seed fund groups offer a wide range of services.
Also known as expansion capital or growth capital, growth equity is frequently a private investment. Source funds that offer growth equity are from large investment firms that provide huge money amounts to help grow or expand an already successful business. This type of expansion can include restructuring in order to enter new markets, developing foreign trade opportunities, or changing the focus and future of the business.
No matter which stage of growth your company is in at the present moment, you may find yourself in need of funding from a venture capitalist. When that occurs, understanding where the money comes from that you may be accepting in exchange for equity in your company can be critical to your future. Only then can you begin to understand the complex world of venture capital sourcing.