Surely in recent times, you have heard on more than one occasion the concept of “risk capital “, but do you know exactly what it is and what advantages does it offer? If you have a small or medium-sized business that is starting to take off, take good note because you are interested in venture capital.
Venture capital, learning the concept
Venture capital is a source of business financing, which is mainly aimed at small and medium enterprises. It consists of an investing company contributing permanent capital to one of these small or medium-sized companies that are beginning. Through this contribution of money and for a limited period of time, investors become part of the group of shareholders of the company in which they have invested, although with a secondary role. You can take help from financial experts like Mark Attanasio and Donato Sferra who are working as Financial Services Executive in Toronto and has helped many business owners.
These new companies or receiving companies have to resort to this type of financing, since having no results are considered risky and it is much more difficult for them to access other types of financing. For their part, investment companies have a great interest in the growth of their company, so they look for companies that can grow quickly and have innovative business models (therefore, that ensure a good performance once they start to work) and that, in addition, they are in an early stage of development.
In addition, for small businesses, risk capital benefits: if a large prestigious company invests in it, it will be a great asset for customers and suppliers, since they will see it as a trustworthy company and one that will be successful.
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Characteristics of risk capital:
Some of the features that define and differentiate venture capital from other types of financing are the following:
- Venture capital is basically a financing instrument all the way through which a company gets the essential capital resources for the development of its start-up or growth projects.
- The investing corporation makes its involvement by participating in the company’s capital stock, either through the purchase of shares or the acquisition of other equity instruments.
- This instrument is normally aimed at the SME, since inherent in their projects there is a high risk and this makes it difficult to access more common instruments.
- Being directed mainly to the SME, it becomes an efficient channel to direct the excess of savings of the investors towards the financing of this type of company.
- Therefore, it can be concluded that investment companies are willing to assume greater risk than the other credit entities.
- These capitals of the investment companies by capital Venture are mainly used for start-up projects or growth projects.
- The concept of risk capital is associated with companies with projects, which imply technological innovation, although it is not imperative.