Venture Capital

Learn about venture capital investments

Venture Capital

Venture capital refers to the practice of an established firm giving a growing business money in order to help them fund overhead costs or expand. It is a form of investment for the firm and is a great way for small business owners to finance their business. Getting a "backer" can lessen the burden of having to apply for small business credit loans and other forms of funding, and can also give the investor a return if the business does well. While there's risk in all investment, this form of investing can benefit both the investor and the business owner in different ways.

A venture capital firm is an organization set up to provide capital to small businesses that are eligible. In order to apply, the small business owner will be required to provide the venture capital company with a lot of information. The owner will have to make a case for why he or she needs the capital, and not unlike a small business loan officer, the venture capital consultant will look at credit, character and other personal information to determine whether or not to invest.

Types of Venture Capital Investment

There are several different types of venture capital investments out there. They include:

  • Seed money. This is low-level financing needed to prove a new idea or get a patent started.
  • Start-up. This is financing provided to small businesses in order to help them take care of any start-up costs and initial overhead.
  • First-round. First-round funding helps business owners with early sales and manufacturing costs.
  • Second-round. Second-round financing provides working capital for those businesses that are manufacturing and selling their products but are not yet turning a profit or breaking even.
  • Third-round. This funding helps companies expand either their product offering or the business itself. It is also called mezzanine funding.
  • Fourth-round. Fourth-round funding is intended to finance the "going public" process and is also known as bridge financing.

Venture capital is also associated with job creation, as venture capitalists and consultants are needed to help business owners with financing.

If you are interested in being a venture capitalist or finding out more about venture capital, contact your local branch of the Small Business Administration to find out more. There are also venture capital firms online and in your area available to answer any questions you may have about this type of business financing.

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