Venture capital is considered, with increasing force, an interesting financing formula for companies, as it increases their economic stability and their own funds, while at the same time providing them with credibility and financial reliability.
Venture capital or investment capital is gaining strength among companies as an alternative for financing. You can also take help from some experts like like Mark Attanasio and Donato Sferra who are working as Financial Services Executive in Toronto and has helped many business owners.
This article explains the main advantages of this financing formula, which is the most appropriate type of company to resort to risk capital and the most common operations carried out in this market, are reviewed: buy outs and expansion capital.
Depending on the stage of development of the company, there are different types of venture capital investment:
This type of investment is related to companies that, or have just been born, or, have not yet started their business activities, and their products or services are in the definition phase. The capital resource needs are usually lower than those of the other phases.
Capital for start-up:
As in the previous type of capital, these investments are aimed at companies that have not yet started with the production and distribution of the product or service. These investments usually have a long maturation period and require subsequent injections of capital to finance growth.
Capital for expansion:
This type of investment is made in companies that already have some path or trajectory and seeks to make viable the growth of the participation of the company in a market already reached, or its introduction in a market to which it had not yet accessed. The fact that the investee company has a previous route reduces the uncertainty and therefore the risk of its operations, by having the existence of historical data, relationship with financial institutions, suppliers, customers, regulatory entities, among others.
Acquisition with leverage:
Under this modality, the acquisition of a company is made, for which a significant amount of borrowed money (bonds or loans) is used, which covers the acquisition costs. Often, the assets of the absorbed company are used as collateral for the loans, in addition to the assets of the acquiring company, with the purpose of allowing companies to make large acquisitions without having to commit significant amounts of capital.
A situation in which a company, which has had poor results over a prolonged period of time, requires financing to make a change in the orientation of its business activities.
In this type of operations, the investing company, when acquiring a position in the receiving company, does not make a contribution of new capital, that is, there is no capital increase available to the company. Venture capital is limited to relieving one or more shareholders who are not interested in continuing their investment. The shareholder that is replaced is normally passive, with which the operation aims to generate new dynamics in the company. It is a frequent operation in family businesses.