Inventors having huge funds like to invest seeing their long-term benefit in start-up companies that have potential to grow but lack in investments. The capital invested is known as ‘Venture Capital’ and such investors are termed as ‘Venture Capitalists’.
The interesting thing is return on investment depend on the growth of the company and hence are highly risky in nature. In turn, venture capitalists also have the power to influence major decisions of the company they are investing in.
A Venture Capital Company can be termed as group of investors who play the role of intermediary. In other words, who take money from Venture Capitalists and invest that money (venture capital) in riskier firms/ start-ups (where a traditional banks are unwilling to invest). As the investments are risky, the companies usually charges a higher rate of interest from the businesses. Higher the risk, higher the interest.
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Any venture capital company works under certain specific investment profile. The investment profile is a document which illustrates types of businesses to invest.
Now even an investor puts his money in the firm, the company in return puts his money to the funds. The fund is then invested in group of companies ( start ups) with expectation to get their return back in period of 3 to 7 years. Once the company gets their money back, the pay back to the investors along with interest. The investors can also be repaid as shares of the stock of the startups. In between all these activities, the company keeps a portion of the money as their commission.
The most probable time is 3 to 6 months before a start-up think it would actually be required.
Not all businesses are suitable for venture capital, only those who are in their budding stage and have tremendous potential to grow in future.
Venture Capital Investment can be grouped in different stages depending upon the maturity of the businesses, stages are :
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