Venture capital represents funding provided to small businesses or startups by individuals or institutions. Collectively, these individuals and institutions become your investors when you receive venture capital. Entrepreneurs who seek to enhance their financial standing by going beyond traditional business loans often seek venture capital to launch their businesses beyond the initial innovation stages and into the marketing phase. If you need venture capital to grow your business, you typically find this kind of funding from large, dedicated funds or investment firms that pool large amounts of money together to make investments.
What Is Venture Capital in Terms of Rewards?
Investors have great rewards in store for them if they distribute venture capital properly. Investors can put new businesses in touch with experts who can help them succeed. If you have a new business with venture capital, the seed money might open the way for you to market innovative products and services that have the potential to become solid revenue generators for years to come. Because venture capital goes beyond a traditional bank loan, your investors may get a larger return on their investment over time.
Venture capital normally kicks in when you’re ready to take a company beyond the initial development phase. You already have a dynamite product and service in-hand. All you need is the funding to mass produce what your business sells, market your products or services to the right people, and hire staff to keep the momentum going. Venture capital comes in handy for the second phase of your business journey as you seek to make your idea profitable over the long-term.
How Do Investors Recoup Their Venture Capital?
Investors who extend venture capital to small businesses and startups do so in exchange for partial ownership of your company. Venture capitalists may seek anywhere from 25 to 35% of a return on their investment per year for the life of the investment. Investors generally keep these investments until your new company generates enough capital to thrive on its own, merges with a more established company as a division of that larger corporation or goes public on a stock exchange. Venture capital funding may last for a couple of years or a decade, depending on the terms of the funding and how quickly your company raises revenue.
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