The basics of venture capitalism.

Keep in mind that two types of financing exist: equity and debt. The former refers to the investment a company gains in exchange for the investor having part-ownership of the business. Debt financing essentially means payment with interest.

Venture capital or VC comes in at the onset, referring to financial capital given to high-potential startup companies in exchange for equity. Venture capitalists provide the funds, while their firms oversee the sourcing of deals, making investment decisions, and maintaining the resulting portfolio.

There are different sources of capital to choose from, including so-called angels, micro seed funds, and growth equity. But venture capital is unique in that it works by utilizing medium funds that invest large amounts of capital to gain equally large amounts of equity.

The process of gaining venture capital begins with an entrepreneur getting introduced to various VC firms. The entrepreneur then pitches their business to the said firms, provides them with term sheets should they decide to invest, then cultivate the business relationship through time. The final step is the repayment of the venture capitalist(s) through IPO, acquisition, and even bankruptcy, should the business fail.
Venture capital often plays a major role in the stage of a company’s lifecycle wherein the business is beginning to commercialize its innovation, especially as it now builds the needed infrastructure (manufacturing, sales, marketing) to grow the business.

PartnersAdmin LLC’s Chief Operating Officer Scott Tominaga has worked in the hedge fund and financial services industry for over 17 years. His company was established in 2008 with the intent of providing quality, outsourced solutions that meet the dynamic back office needs of the alternative fund industry. For similar posts, check out this blog.