Venture Capital is a type of investment in which a venture capitalist invests money in a new business with growth potential.
Many people dream of owning and running their own business, whatever it might be. However, there is often one major obstacle in their way, which is money. One of the most difficult aspects of starting their own company is the question, where to get the money from? While there are the usual ways to fund a business: your savings, loans, etc., another good way is venture capital.
Venture Capital is money that is provided by investors for the business. The way venture capitalism works is this: if you have good and feasible business idea, you submit a business plan to a venture capitalist (VC). A venture capitalist is someone who had the means (i.e. money) to invest in your business. If they think you business has a new and innovative idea and is viable, them they will invest in the business. In return, they usually have equity options in the company, so that when the company has taken off and starts making money, they will get a certain percentage of the earning.
Investing in a new business is always risky, and especially so for a venture capitals. However, they do so because there is a potential for above-average returns on their investment. In addition to money, a venture capitalist will also lend their managerial and technical expertise to the business. Most venture capital comes from a group of wealthy investors, investment banks and other financial institutions, all of whom often have a plethora of information and technical knowledge.
However, the downside for entrepreneurs is that the venture capitalist will often get a say in the company’s decisions, hence taking some control away from the entrepreneur. This is in addition to the part equity and profit that they are already entitled to. Still, once the company takes off, the entrepreneur always has the chance to buy out the venture capitalist by buying back their equity.
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