Every small business needs funds to operate and grow. But funds for growth may often not be readily available. A solution can be found in securing venture capital.
What is Venture Capital
Venture capital is a type of private equity financing that investors provide to small businesses and startup companies that appear to have exceptional long-term growth potential. In exchange for their investment, investors look for above-average returns.
Venture capital investors include wealthy investors, VC firms, investment banks, and other financial institutions. Growth funding is typically provided in exchange for a percentage of ownership in the company, so investors have a say in the direction of the company as they seek a return on their investment.
How Does Venture Capital Funding Work
Typically, the funding process starts with an introduction to a venture capitalist by someone who knows both parties. That can be followed by a more detailed discussion and phone call to determine the interest and mutual fit of both parties. Then, if the venture capital individual or partner is interested, he/she will ask for a “pitch deck” that describes the need for funds and the company’s growth potential. If the investor is interested, he/she will be given a prospective term sheet. Thereafter, the investor will perform a thorough due diligence examination of the company. Based on the outcome of that investigation, offering documents will be provided for the company’s review and approval. If the company approves, funds will be transferred to the company’s bank.
Pros and Cons of Venture Capital
Pros:
• A large amount of financing can be provided.
• The VC firm can offer significant business expertise.
• The VC firm can also offer the benefits of business connections.
Cons:
• There will be a loss of ownership control due to the VC firm’s equity stake.
• The venture capital funding process is typically lengthy and complex.
Seek Expert Financing Assistance
Contact Porter Capital Group based in Southlake, TX, your commercial finance expert. Our team of finance professionals can help you secure capital for your needs and circumstances.