Sadia Zia

Venture Capital: Venture Capital is defined as a loan capital that is given by investors to set-up new firms. This type of loan capital usually has a risk of loss as one may not get certain about the success of newly started business. Venture Capital is also known as risk capital. All the venture firms that are providing capital usually demand equity in the newly set up business in exchange of Venture Capital. Venture Capital is also funded to small firms if they have strength to take their business to the height of progress and prosperity. Every entrepreneur needs Venture Capital at any point of time to churn up his business but it has never been too daunting for the old firms as compared to newly set-up firms. But there are many questions that every newbie would definitely like to know if he is going to have Venture Capital. When to raise money, what should be the terms, whom to take money from? And many other questions that need to be answered well. Venture Capital funds are mostly run by financial wizards, former entrepreneurs. These general partners (GPs) are responsible to decide the size of the capital funds and where to invest it while limited partners (LPs) provide funds to meet the investments and fulfill the tasks to get success in the newly step-up business. In short, GPs give ideas regarding newly set-up business while LPs make all the funds that are needed to accomplish the difficult tasks and meet the goals of the new firm. All the funds are managed by the GPs with close attention and cleverness. Whenever these GPs get money from other sources, they frequently plan to find investment opportunities without wasting a single day. They consider many opportunities but only pick up few firms in order to fund with exchange of equity. GPs also sit in the meetings of the firm to manage all the investments. Time limit for the Capital Venture is 10 years. GPs take two or more percent of the amount that is committed to fund in the form of salaries and other expenses. These GPs try hard and convince the venture organizations to invest money in order to receive huge amount of returns in a fixed amount of time. There are numerous things that an entrepreneur must kept in mind before making a decision to have Venture Capital. Like any other thing, Venture Capital also has many advantages and disadvantages. Advantages of Venture Capital: It has numerous advantages as we don’t have to repay funds like we do in loan scheme. One must not repay funds as a cost of setting up business and running it. There are many Venture Capital firms, who have staff of professional and experts that are known to all the aspects of markets and business. These VCs can help new firms to go well with their business as people find many obstacles at the beginning of business. If someone is an entrepreneur, it doesn’t mean that he will also have good managerial skills. For that, every Venture Capital company gets equity in business and also helps an entrepreneur to manage things well by providing expertise and connections with industry. They give their experience to tackle with difficult situations. It can be of great importance if one lacks managerial skills. Venture Capital can be highly beneficial for both Venture capitalist and company. If a company turns out to be successful then capitalist will surely get return of huge amount which will be higher than any other investment. This is the reason that Venture capitalist take interest in such kind of risky business. It is quite easier to locate Venture companies as they are always registered in business directories. It’s difficult to find any unscrupulous Venture company as they are always under strict supervision. They also help the firms in hiring professional staff and provide HR consultants, who actually assist in hiring efficient and honest people. They bring innovations and make intelligent decisions to thrive business. It is always an attractive deal for all the entrepreneurs who are setting up new firms. Disadvantages of Venture Capital: When any of the firms apply for Venture Capital then they have to get agree to certain conditions and make sure that they will not breach the contract in any consequences. There used to be some strict restriction like they have to provide information of their every single move to the VCs. They will have to give up equity to the VCs and can never keep things confidential regarding business. They will have to give up large amount of equity in order to attain Venture Capital funds. By this act, investors get big say in the business and it provides them strength to change the direction of the firm and you act like a servant in front of the investors. Sometimes, it gets difficult to obtain and find Venture capital as it is sparse. Most of the entrepreneurs are sent back by the investors as they pay no heed to the people who are less efficient and active. It may be due to the nature of investors as some of them are quite selective about the technologies, geographic areas, industries and the rates of return on investment. VCs usually hire members of their team in firm’s management team, which is intolerable at some extent. It can cause hindrance among management team of the firm and the newly hired members by VCs. VCs are always excited to earn huge profit at once as they are going to invest plenty of funds, so they take enough time to think whether they have to make investments in the business or not. VC firms have an opportunity to obtain their investment back and shut deal within three or 5years of time. It may not be good for any company to work with such risk. They will leave you like a wrecked ship in a sea. As one can see above, that VC has many advantages and disadvantages. So, any of the firm that is going to set up new business with the help of VCs must figure out all the pros and cons of Venture Capital funding.