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What is venture capital and how can it help my business?

There are different methods of financing business, real estate and other growth opportunities for your company. You may have heard of venture capital as a method of financing but may be unsure exactly what it is. Venture capital is a type of equity-based financing that may be best for entrepreneurs starting out a business. Venture capital can help start-up businesses that may be unable to obtain traditional financing, such as financing from banks and public markets, because of their size, assets or nascent stage of development.

Venture capital is usually characterized by focusing on new companies with the potential for high growth, invests equity capital and not debt, is willing to accept higher risks in exchange for higher returns, plans for a longer investment outlook than traditional forms of financing and participates in active portfolio management through a number of different methods. In general, venture capital funding is typically extended for shares in a company or an active role in the company. Venture capital may be extended through angel investors or equity capital.

Angel investors are active investors who also seek to add value to their investments. Equity capital includes funds raised in exchange for shares of ownership, or equity, in the company. Angel investors or private investors typically possess certain characteristics it is important to be familiar with. It is also important to thoroughly understand what can be a complex venture capital process. There are a variety of different ways to finance your start-up or the growth of your business.

Understanding how to initially finance your business and how to finance it as it grows is important for any business owner. Running a business can be a complex and important endeavor which is why business owners should be knowledgeable about the variety of resources available to them, including venture capital.

Source: United States Small Business Administration, "Venture Capital," Accessed Sept. 4, 2016

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