Entrepreneurs, aiming to start their own new ventures and companies, have several ways of creating funds for investments to get that kick-start one needs in the beginning stage. One such popular source of gaining funds to strengthen their start-up is venture capital. This method provides good money to the young businessmen who are looking for capitalists to invest in their upcoming firms via online trading companies like HBSwiss. The profits are divided among the two according to the venture plan adopted.
To understand how this procedure works, let’s take a look at different methods of venture capital financing.
Means of Venture Capital Financing:
This concept of venture capital financing has developed into different types in the last few years. Some of the most prevalent methods of venture capital financing, also called VCF, are explained below.
- Equity: All the venture capital financing done in most part of the world provides equity. The input they make doesn’t cross 49 per cent of the total capital, which is why the primary control and most of the ownership of the company remains with the owner. After the capitalists invest the equity money, they obtain the status of the holder. This makes them entitled to bear equal profits and losses in this business. The best part about this method is that the entrepreneur is not entitled to release the capital in return as the bonuses are not paid if the company incurs losses or there is no cash flow. Similarly, it works in the capitalist’s favor as they can enjoy great profits if the company succeeds.
- Conditional Loan: This type of loan finance has no pre-decided repayment program or interest rate. Once the new company makes sales, it becomes repayable in the form of a royalty. There are no interests involved in such loans.
- Conventional Loan: These types of loans involve less interest at the initial stage, which gradually grows after the commercial production starts. At the time of the initial years, unavoidable and small royalty is charged to avoid the interest. The principal amount is then given back according to a pre-decided plan.
- Income Notes: This particular type of venture capital finance method is an option that carries a stable low rate of interest along with a royalty on sale. Income notes offer the characteristics of conventional as well as conditional loans. In this case, too, the principal amount is returned according to a decided schedule.
Other types of venture capital funds provided all around the world include hire-purchase finance, lease finance as well as overdraft finance. However, the complete financial package is always inclining in support of the equity module.
So, if you are starting a new venture and are looking for the correct VCF method for your business, consult the market experts and pick the method that looks the most promising to you.