Venture Capital

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What is Venture Capital and how does it work?

Venture capital (VC) is a type of private equity financing provided by firms or funds to small, early-stage, emerging firms deemed to have high growth potential, or who’ve demonstrated high growth in terms of employees, revenue, or both.

Venture capital is attractive for developing companies with limited operating history, who are too small to raise capital in the public markets, and who aren’t able to secure a bank loan or complete a debt offering.

In exchange for the high risk that venture capitalists assume by investing in smaller, early-stage companies, venture capitalists usually get significant control over company decisions, in addition to a considerable portion of the company’s ownership and consequent value.

Who is Venture Capital aimed at?

Venture capital firms or funds invest in developing companies in exchange for equity, or an ownership stake. Venture capitalists take on the risk of financing risky startups in the hopes that some of the firms they support will become successful.

Startups like Uber, Airbnb, Flipkart, Xiaomi & Didi Chuxing are examples where venture capitalists contribute more than financing to these early-stage firms; they also often provide strategic advice to the firm’s executives on its business model and marketing strategies.

When should you use Venture Capital?

Startups and newer companies that lack historic operating history, and are generally too small to raise capital via public markets, as well as being unable to secure finance through other mainstream funnels are prime recipients of venture capital.

Where can you get Venture Capital?

Similar to sourcing angel investors, with no public exchanges listing venture capitalists’ details, it can sometimes feel like an impenetrable circle. Typically, venture capitalists are found by attending investor symposiums, through referrals from trusted sources, or at Dragon’s Den style meetings where companies pitch directly to panels of potential investors.

The startups favoured by venture capitalists in the current market are of an innovative technology or business model and are usually from high technology industries, such as information technology, clean technology or biotechnology.

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