Venture capital investment is a recent phenomenon of business financing that has disrupted the traditional source of capital for business such as commercial loans. Entrepreneurs frustrated by commercial banks find venture capital financing a welcome relief. For investors, the new opportunities presented by a potential start-up is a novel way of multiplying their wealth.
In this article, find some advantages of this form of financing to the entrepreneur.
For an entrepreneur toiling alone, the opportunity of bringing in money from venture capital investors is a brilliant way of spreading the risk. The entrepreneur does not have to risk everything to see the business succeed. The capital injection helps shoulder some of this burden.
No Repayment Demands
Unlike commercial bank loans, entrepreneurs whose businesses secure venture capital financing do not need to worry about loan instalments or interest rates. The capital injected by venture investors is essentially equity rather than debt. Both parties succeed together or perish together. A venture capitalist will not demand repayment if the business fails. They are part of the business.
Entrepreneurs benefit a great deal from the experience brought in by the venture capital investors. As a matter of practice, investors become part of the business management team upon release of financing. This brings in an injection of expertise in the leadership of the business. With their vast industrial and marketplace experience, the likelihood of success is increased even if by small margins.
Venture capital investors have every interest in seeing the business grow to the projected heights. They will, therefore, do everything it takes to achieve this considering that their money is at stake. One way of doing this is by finding and linking the business with other businesses if only to enhance the chance of growth and profitability. For a solo entrepreneur, there is much loneliness at the top. With investors on board, this problem is well solved.