“The business has only two functions- marketing and Innovation”- Milan Kundera. A true and inspiring quote, isn’t it? For a business to establish itself in the market, it has to be innovative. An interesting topic to read for those who want to understand the subject of venture capital.
A venture capitalist invests money in start-ups or in companies that are thinking of business expansion and have long-term growth potential. They invest in early-stage companies in exchange for equity.
Millions of companies seek help from venture capital firms, but the firms choose only those companies that are extremely well off in the market. These venture capital firms are a helping hand for private and public sectors that can achieve substantial growth in the market. Venture capital firms first identify start-up companies and then provide them with funds, technical advice, mentoring, marketing strategies, etc.
Banks do not take a risk in lending funds to such start-up companies, thinking of the adversity the business might face till it gets recognized. Whereas venture capitalists lend funds to risky start-up companies as they have the potential for long-term growth.
For a better understanding, let us look at the below example: Suppose company A has a surplus amount of cash on hand and he does not know what to do with the amount or where he can invest. Another company, B, approaches company A and says, to pitch in the surplus amount. Company A says, "Hey, hold on, without making an analysis of your company, how do you expect me to invest?" Company A said that I would make an analysis of your company with regards to market recognition, sales, and growth opportunities, and then invest. So, this is how a venture capitalist or a venture firm works in real-time.
Some points to be considered by businesses to be recognized by venture capitalists-
A venture capitalist considers a business with high growth potential.
Venture capitalists professionally manage the funds that are invested in companies that have huge potential.
The money a venture capital firm has usually comes from corporations, institutional investors, or wealthy individuals.
Venture capital firms are more interested in start-ups as they have the ability to scale easily.
Even as a start-up, adhering to marketing strategies and standing out from the crowd allows you to be easily recognized by venture capital firms.
Venture capital firms are ready to invest in risky start-ups, as they believe in the company’s long-term success.
In case the start-up fails, a Venture capital firm does not burden the company to pay back.
Due to venture capital firms, start-up companies are flourishing. Most businesses fail due to insufficient funds. When a start-up company reaches the growth stage, it needs a significant amount of money to operate its business further. Venture capital firms are trustworthy, as they have been regulated by SEBI.
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