When a venture capitalist takes the decision of investing in a small company, he or she does so after carefully studying the business plan for a period of up to 3 years. Generally the offers that enter this process are those that are different and innovative with a high potential for success. Venture capital funds follow a different set of rules than those established by banks. For instance, a venture capitalist will give great importance to the documents presented, the experience and profile of the entrepreneur, the idea of the business and the product it will offer to the market, and of course its innovative qualities.
Venture capital is obtained after going through a complex process. Depending on the kind of venture capital we are talking about, the investor may choose to buy shares (ordinary or preferred), or agree to receive advances on their bank accounts.
Venture capital is not intended to remain indefinitely invested in the company. Its intervention should be ad hoc and limited in time. The output can be achieved by: reduction or amortization of capital, the repurchase of securities by original partners at an agreed price, the resale of securities to a financial or industrial group, and by the sale at a capital development.
Venture capital gives the investors their moneys’ worth after the resale of the shares they bought hoping to get a better price in the future. However, they are taking the risk of losing money if they sell it at lower price or not being able to sell them at all.
You may be wondering, who are these investors? Well, venture capital can be given by angel investors, venture capital companies, or venture capital funds that help small business that have innovative or different ideas.
We present you here a list of factors that venture capitalists will take into account when choosing a company:
For investors what the company does and how it does it is important. They will want to know whether the business produces, creates, develops or recovers.
Also, investors will want to know whether the business will be a public, private or semi private entity. This information will be of more or less interest to the investor depending on their choice.
The amount of the investment requested will also determine what kinds of investors the proposal will attract.
The areas of funding are particularly important to venture capitalists because some may look for specific areas: technology, innovation, etc. As well, as if coverage is requested for a small or large geographic area.