As a specific type, Venture capital can be sought from Business Angels (who are a type of venture capitalist) for those businesses looking for an investment often under the £100,000 mark. They are usually individuals rather than groups, often wealthy entrepreneurs looking for a good investment. Much of the Venture Capital money of the sort that Business angels look to work with is directed at start-ups or companies in their initial stages of growth.
Business Angels place less emphasis on your business having a good track record and the whole investment process is far more informal. The 'chemistry' between you and the business angel will have as much a bearing on the deal going through as your projected profit calculations.
Venture capital usually represents an investment of £250,000 or more in a business in return for a shareholding, and a proportion of the yearly profits.
A venture capitalist's (VC's) interest in a company does not usually extend beyond three years - in that time they will expect to make a 25 to 30% return per annum on their initial investment. The rate of return may seem high, but the venture capitalist would argue the potential rewards make the risk worthwhile.
To offer a shareholding in your company has to be incorporated. The VC will also seek representation on the board of directors. This means relinquishing some of your control: but the VC board member can provide market knowledge and expertise for the benefit of your business.
Venture capitalists come in many shapes and forms: they can be private investors represented by groups of professionals such as accountants, solicitors, stockbrokers or bankers. They can be corporations, Government bodies or groups controlling EU funds.
Why would I want one?
It could be your only option if you haven't got reserves to dip into and need a major injection of cash that would be insufficiently covered by a loan or overdraft. Not only do you get more funds for your business but you also gain more leverage to obtain debt finance.
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