Venture capital

• What is venture capital?

  Finance provided to small to medium-sized enterprises (SMEs) which may be considered as risky investments by share buyers or banks
• Venture capital is finance provided to small- to medium-sized enterprises (SMEs) that seek growth or initial investment and may be considered as risky investments by share buyers or banks
• What type of businesses use venture capital as a source of finance?

  Small to medium-sized enterprises (SMEs)
• What does SME stand for?

  Small and medium-sized enterprises
• What is an SME?

  These are enterprises that have less than a specific level of investment and turnover
• Is venture capital a source of short or long-term finance?

  Long-term
• With venture capital, finance is provided in exchange for a share of the company (equity) and future profits in the form of dividends.
• What are venture capitalists also known as?

  Business angels
• What is a business angel?

  An individual who provides finance and support to small and medium-sized enterprises in exchange for a share of the company
• The venture capitalists (also be known as business angels) in addition to finance may provide advice, experience and contacts to help in the running of the firm, increasing its chances of success
• What might a venture capitalist (business angel) also provide in addition to finance?

  Expertise, advice, experience and contacts
• Venture capitalists will only invest if they believe that there is potential for high returns on their investment
• A disadvantage of using venture capital is that it can lead to loss of control over your business
• The need for venture capital arises when a rapidly growing firm requires more capital, but the firm is not yet ready to trade on the stock market or is unable to find finance elsewhere
• What are the main benefits of venture capital?

  • Access to large amounts of capital quickly
  • Expertise from investors
  • No repayment until the business has been successful
• What are the main drawbacks of using venture capital?

  • Loss of control of the business
  • Demand a significant return on investment
  • Equity dilution
• Venture capitalists demand what in return for investing in the risky business?

  Significant return on investment
• What happens to equity when a business uses venture capital?

  Dilution