RISK CAPITAL

Accelerate your business with these expert tips on "Venture Capital". Take a look and discover this TIP!

A form of business financing as an alternative to traditional forms of financing. By means of which venture capital companies invest in business projects with expectations of high growth in a relatively short period of time. These companies professionally manage private assets, so their main objective is to obtain the highest possible returns.

One of the main differences with traditional methods, is that in this type of financing the profit does not come from interest that is paid on a regular basis. Rather, the venture capital company becomes a shareholder of the company. In other words, it becomes a partner in the organisation.

As a partner, you will have the right to participate in the decision-making process relating to the strategic plan, and you will also be involved in advising the management of the company. You will also benefit from the profits generated by the company, which is your main incentive for making this investment.

Types of venture capital investment

Depending on the stage of development of the start-up, there are different types of venture capital investment:

Seed capital 

Relating to companies that, or to(a) the business activities of which have not yet started or which have not yet started their entrepreneurial activitiesand their products or services are in the definition phase (idea phase). This capital is usually used for preliminary expenditures such as: market research or product development or prototype testing. Capital resource requirements are usually lower than for the other phases.

2. Start-up capital 

Investments aimed at companies that have not yet started with the production and distribution of the product or service. In companies that are newly created and therefore have not yet generated profits. These investments tend to have a long maturity period and require subsequent capital injections to finance growth.

3. Capital for expansion 

This type of investment is made in companies that already have some history or track record (traction). It seeks to make the growth of the company's participation in a market it has already reached viable, or its introduction into a market it has not yet entered. The fact that the investee company has a previous track record reduces the uncertainty and therefore the risk of its operations, as it has historical data, relationships with financial institutions, suppliers, customers, regulatory bodies, among others.

4. Leveraged buyout 

Under this modality, the following is carried out the acquisition of a company, for which a significant amount is used to cover the acquisition costs. Often, the assets of the acquired company are used as collateral for loans, in addition to the assets of the acquiring company, in order to allow companies to make large acquisitions without having to commit significant amounts of capital.

5. Restructuring capital 

It is used in situations in which a company, which has had poor performance over a prolonged period of time, requires funding to make a change in the orientation of its business activities.

6. Replacement capital 

In this type of transaction, the investing company, by acquiring a position in the target company, does not inject new capital, i.e. it there is no increase in the capital available to the company. Private equity is limited to relieving one or more shareholders who are not interested in continuing their investment. The shareholder that is replaced is normally passive, so the operation aims to generate new dynamics in the company. It is a frequent operation in family businesses..

If you are looking for funding for your startup, you can consult the best option in our MentorAdvisor