What is Venture Capital?

 

VC Funding

VC Funding

Venture Capital is a source of funding for businesses which are just getting started. Investors provide funding for businesses that have a high growth potential. Efraim Landa is an expert at helping emerging companies locate sources for venture capital. As an entrepreneur, he understands the difficulties involved in getting a business off the ground. The company he founded is designed for the purpose of helping such companies. Included in their area of expertise in Venture Capital they include managerial as well as technical counsel.

VC Funding

Starting a business will take money this is certain. Office space, furniture, various types of office equipment and supplies and money for hiring employees are all some of the initial expenditures a new business should expect. There are some different ways to obtain the money for the many needs of a new business. Of course one can use resources such as personal savings or second mortgages. Bootstrapping is a common way to fund a business. This method uses a small investment to get started and then all profit goes back into the growth of the business. This method works for a business or industry where there are minimal start-up expenses and no additional employees are needed. And of course the traditional bank loan is possible. However, because each business has individual needs these options are not always the wisest or the best choice. There are certain limitations associated with each of these choices; unless of course the entrepreneur is already very wealthy.

Venture Capital is another way to meet the financial needs that are associated with starting a business. This can be a means of obtaining large quantities of finances which can help a business with start-up expenses especially for the fast growing business. Investing firms provide an investment in the business and in return they will receive a percentage of the generated profits. Generally the company who invests in the emerging company will also participate on the executive level such as taking a seat on the board of directors. This allows them to have a role in the decision making progress. For the growing company this type of experience represented on this level can be invaluable and help ensure the success of the business.

How VC Works

Before any investments are made into a company there must be a business plan in place.  The business plan will carefully lay out how the business is to be run, how it will make money and how fast it is expected to grow. This is presented to the interested investors who will contemplate if the business seems worth the investment. If the VC company feels like it is a worthwhile cause they usually offer a round of money called seed money. The funding may occur in 3 or 4 rounds before the company goes public with investment options.

One major negotiating factor that is considered when an investment firm participates in VC is how much stock they will receive from the profits. This is how they choose a valuation for a company. It is basically how much they feel the company is worth. Before investment begins this is called the pre-money valuation. After the VC is received by the company the investing firm then generates the post-money valuation. The percentage by which these two values change will determine how much stock the VC firm will receive. Typically, this is somewhere between 10 and50 percent.

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About Efraim Landa

My name is Efraim Landa I am an entrepreneur and an expert in venture capital. I am the co founder of Effi Enterprises, a venture capital firm as well as the co founder and CEO of Gluco Vista, a company that is in the process of developing a non invasive glucose meter for those with diabetes.

Posted on May 14, 2012, in Business financing, private equity, VC financing, Venture Capital and tagged , , , . Bookmark the permalink. 2 Comments.

  1. Great post about the ins and outs of venture capital. I learned a lot

  1. Pingback: What is Venture Capital? | Offshore Business Formation Today

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