What Are Venture Capitalists?
Using venture capitalists to provide your business startup capital can be a good thing if you choose a venture capitalist wisely and understand how they work and what they do.
Venture capitalists can be a person or firm that offer capital funding to both new and existing businesses. Isn't that the same as a bank? Not really, say the experts at Forbes Magazine. In order for a bank to give you a loan for startup capital, they really like to look at your past experience. If you're starting a new business and have no experience of history, you will most likely not get a loan from your bank.
Venture capitalists, on the other hand, look at what you can project for the future, how you will grow, marketing plans and cash flow forecasts. Unlike banks, however, who will be a creditor if you do get a loan, venture capitalists often are stockholders in your business until they are paid in full. Depending on each venture capitalist, their involvement as a stockholder can be minimal or very involved. Most new business owners prefer minimal involvement but depending upon the amount of money you are looking for, that may not always work.
Additionally, most venture capitalists don't like funding capital for a new business, but will often offer a lower amount of funds much as a bank would as "start-up financing." If you can achieve this route, you will pay back the venture capitalist much the same way you would a bank with an agreed upon interest rate. If your new business idea is a hot commodity, you may have better luck with venture capitalists. Keep in mind that venture capitalists, like banks or other investors, won't give a new business all the money it needs to get it up and running. They want to see some assets, liabilities, capital, and monetary commitment from the business owner as well.