Venture capital is funding invested into your business’s success.
Venture capital includes funds that are made available by a private group of investors into a business with high growth potential. A group of investors will invest money into a business with the goal of earning a profit on their investment. They will invest in all stages of a company if they find it worthy of an investment. Venture capital is best suited for companies with a new, unique product or service that has a large national or international market potential.
A venture capital firm also wants to make sure that the company has the potential to gain $25 million in gross revenue potential from its unique product or service before it will invest in that company. It is critical that you can make a minimum of a 50% profit margin with your product or service to help maximize your profit and growth potential.
Another factor that plays an important role in determining if your business will qualify for venture capital is whether or not your business has a strong management team with a proven track record of business success.
A venture capital company will typically invest between $500,000 to $5 million or more into a company. More money is invested in the later stages to assist with growth. Human capital is also invested in the company. This means that consultants are provided by the investment firm to work with your management team to ensure you have optimal growth from your investment.
Venture Capital Types and Definition
| Capital Type | Capital Type Definition |
|---|---|
| Equity Loan | An offer of an ownership stake to induce the borrowing or a note with the opportunity to convert from debt to equity. |
| First Round Funding | Typically, funding that allows for expansion. R&D may have been completed by the company. Convertible bonds are frequently used to fund projects. |
| Second Round Funding | A maturing company with the potential for a future leveraged buyout, merger or acquisition, and/or initial public offering. |
| Later Stage Funding | A mature corporation in need of funding to enable considerable expansion or new product development. The company is profitable or has reached its breakeven threshold. |
| Merger and Acquisition Funding | The merger of two businesses. It is a merger if only one firm remains. It is an acquisition if both survive. |
| Mezzanine Funding | Your company has achieved significant development, making an Initial Public Offering (IPO) feasible. The IPO is supported by venture funds. |
| Seed/Startup Funding | The early stage of business capital, often provided with no operating history. The investment is based on a good company strategy, your management’s history and experience, as well as your target market and financial projections. |