The Basics of Venture Capital Funding

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Venture Capital Funding

• Robert Smith

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Contents

• Introduction
• Features of Venture Capital
• Advantages of Venture Capital
• Disadvantages of Venture Capital
• Stages of Financing
• VC Investment Process
• Venture Capital in the USA
• Conclusion

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Introduction

• Venture capital is the financial capital
  provided by investors to early stage, high
  potential and startup companies.
• Venture capital firms get money by owing equity
  in the company.

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Features of Venture Capital

• High Risk
• Lack of Liquidity
• Long Time Horizon
• Provided at Early Stage
• High-tech
• Participation in Management
• Equity Participation

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Advantages of Venture Capital

• It provides large sum of equity finance.
• It brings wealth and expertise to your company.
• VC funding is not a loan scheme, so there is no
  repay schedule.
• Easier to secure future funding through venture
  capital funding.

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Disadvantages of Venture Capital

• Lengthy and Complex process. They need detailed
  business plan and financial projections.
• You have to add a member of VC firms in your
  companys management team. This can create
  internal problem in the company.
• At deal stage you have to pay for legal and
  accounting fees.

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Stages of Financing
Financial Stage Periods (Funds Locked in Years) Risk Perception Activity
Seeding Capital 7-10 Extreme RD for Product Development
Start Up Capital 5-9 Very High Developing Prototypes
Early Stage Capital 3-7 High Start Commercials Production and Marketing
Expansion Capital 3-5 Sufficiently High Expand market and working capital need
Late Stage Capital 1-3 Medium Market expansion and Acquisition
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VC Investment Process
Deal Origination
Screening
Evaluation
Deal Structure
Post Investment Activity
Exit Plan
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Venture Capital in the USA

• It is hard to create VC firms.
• For two-third of VC firms, the first fund is
  their last fund.
• Only 10 of VC firms launch more than four
  funds.
• Difficult for VC firms to become a two-tier.
• Venture capitalists invested some 29.1 billion
  in the U.S. through the fourth quarter of 2011.

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Conclusion

• The venture capital firm is an uncommon
  institution. It rises on reputation and skills of
  its person.
• VC firms can assist small companies to upgrade
  their technology.
• Continued success is needed to become top-tier
  firm.

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Reference Links

• http//www.mytopbusinessideas.com/advantages-ventu
  re-capital/
• http//en.wikipedia.org/wiki/Venture_capital
• http//iveybusinessjournal.com/publication/venture
  -capital-firms-in-america-their-caste-system-and-o
  ther-secrets/
• http//bit.ly/18xGcx1

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• Thank You !!!