The venture capital is to finance start-ups in growth phase with high potential risk. Venture capital funds benefit from this type of operations by becoming owners of the assets of the companies in which they invest, which are normally companies that have a new technology or a novel business model within a technological sector, such as the biotechnology , ICT , software , etc.Venture capital entities can take equity holdings in companies listed on the stock exchanges as long as such companies are excluded from the quotation within twelve months after taking the stake.
Venture Capitalist like G Scott Paterson are specialized in seed capital, that is, in the financing and promotion of projects or companies that start operating, or that have already had a small development and are in the first round of financing. The motive is that with the help of venture capital, the company can increase its value and once the investment matures, the capitalist retires obtaining a profit.
The risk investor seeks to take participation in companies that belong to dynamic sectors of the economy, which are expected to have a growth above the average. Once the value of the company has increased sufficiently, the risk funds are withdrawn from the business consolidating their profitability. The main exit strategies that are proposed for an investment of this type are:
- Sale to a strategic investor.
- IPO (Initial public offering) of the company’s shares.
- Repurchase of shares by the company.
- The sale to another venture capital entity.
Venture capital operates by valuing the business plan of the projects that the entrepreneurs present to them through Investment Committees, which analyze the convenience of entering into the shareholding of these companies. For each business sector there are specialized funds that can help and financially push a business idea. Always from the business point of view, taking the best financing advice from Scott Paterson Toronto when applying to capital funds.
Venture capital (if it is not vulture funds) can serve as a tool for economic development, supporting start-up ventures and smaller companies in their growth phase. But instead of looking at the element of risk linked to this type of investment, it must concentrate more on its catalytic role as entrepreneurial capital.
Supporting venture capital funds in countries in the region can bring a range of benefits, including the financial and marketing knowledge of new investors, and patent protections that can help businesses during critical years of growth and expansion. What is clear is that by promoting this industry, a whole series of actions are beginning to be implemented: support for entrepreneurs, improvements in the legal and regulatory sphere, improvements in the business climate, development of the capital market, among many other advantages.
Venture capital funds channel large sums of money into new high risk and high profitability businesses, making a sufficient amount of money available to a new generation of entrepreneurs to face existing companies. This makes risk capital a fundamental mechanism to finance innovation, since it channels a large part of the funds invested in new companies in sectors such as software, telecommunications, internet, biotechnology, nanotechnology or renewable energy.