Venture Capital funding is an investment in your business, usually in the form of a stock purchase, by an individual or fund, whose goal is to help manage your company to grow rapidly. The goal of those who provide venture capital is to sell that stock when it has greatly increased in value. That becomes a win-win. The investor gets increased return on his investment, and you get a more successful company.
There are several advantages to venture capital funding. It provides much needed cash to reach your business goals with wise financial management. The venture capital firm will have many resources, including marketing, business modeling, financial analysis, sales management and all of the other skills that make a business grow and run successfully. Without venture capital funding, those are services that you would have to pay for from outside sources, if they are not already employed in your business.
There are some aspects that may be considered disadvantages to venture capital funding. All of that new help you will be getting from several new resources comes at a price, and that is usually a seat on the Board for the investor, and some loss of complete control by you. The investor wants to protect his investment by having a say in how his investment is being used. He will want to implement some of his ideas on how to help the business grow more rapidly. That may include going public or merging with a competitor. On the other hand, the advice from the investor will be the best that he has gained through his experience because failure is not an option for him. However, if the business fails, it fails, but the investor will have had his input into the operations, and he will take the same loss as every other stock holder. You will not have any obligation to pay his investment back to him, as you would if he had only loaned you the money.
The availability of venture capital funds is at an all-time high.Ernst & Young reported last July, “Mega-round numbers (investments totaling $100m+) have been on the rise since Q1 2020 and this quarter did not disappoint, with more than 200 mega-rounds in a single quarter for the first time. Nearly 60% of all capital raised in Q2 came from 205 deals totaling $41.6b. This quarter also saw a large increase of private equity participation in the venture asset class. We’ve seen this trend over a number of years and without it, we wouldn’t be seeing the large number of mega round financing.. . . Now, the money continues to flow and shows no signs of abating. . . . I see a very bullish outlook for the venture market over the next few years.”
Last year Forbes Magazine reported, “In short, the future is brighter than ever for VC as we move into Q2 of 2021. There are large amounts of capital waiting to be invested . . . The post-vaccine world should be an active and exciting time for the industry as the economy continues to reopen. The current generation of disruptive companies is expected to continue increasing in scale, valuation, and importance . . .. These tailwinds should certainly fuel investors’ interest and ability to fund tomorrow’s next great startups.”
Obtaining venture capital funding involves due diligence, preparation of several documents and negotiation of all the complicated terms and conditions to structure the investment to your advantage. The attorneys at Corporate Securities Legal LLP are experienced at venture capital funding arrangements and will make sure that you receive all the benefits without excessive restrictions, so your company can achieve the success you desire.