The venture investor, as a rule, doesn’t aspire to acquire company controlling block of shares (anyway, at primary investment). And in this is radical difference from the strategic investor or the partner. Last frequently initially wishes to establish the control over the company, interesting it for those or other reasons.
The purpose of the venture capitalist is in other. Acquiring shares block or a share, smaller, than control stake (minority position or stake), the investor counts that company management will use its money as the financial lever (financial leverage) to provide faster growth and development of the business.
Neither the investor nor its representatives don’t incur any other risk (technical, market, administrative, price and so forth) Except for the financial one. All listed risks are born on itself by the company and its managers (remember: joint venture). Thus, one more preference of the venture investor is the accessory of control stake to managers of the company. Having a control stake, they keep all stimulus for active participation in business development.
If the company, in a finding in it as the co-owner and the partner of the venture investor achieves success i.e. if its cost within 5-7 years increases in several times in comparison with initial, to investments (pre-money evaluation), risks of both parties appear justified and all obtain corresponding reward. If the company doesn’t justify expectation of the venture capitalist it can lose completely the money (in that case when the company declares itself the bankrupt), or, at the best, return the enclosed means, without having received any profit. Both the second and third variants are considered as failures. The profit (capital gains) the venture capitalist arises only when after the lapse of 5-7 years after investment if he will manage to sell shares block belonging to him at the price several times exceeding an initial investment. Therefore venture investors aren’t interested in profit distribution in the form of dividends, and prefer all got profit to reinvest in business.
Sales process in venture business also has the name – exit. The period of stay of the venture investor in the company carries the name of joint residing – living with company.
Division of joint risks between the venture investor and the businessman, the long period of joint residing and open declaring by both parties of the purposes at the initial stage of general work – composed quite probable, but not automatic success. However, such approach represents the basic difference of venture investment from bank crediting or strategic partnership.
So I am sure that this article was useful for you to read and you found out a lot of interesting information in it that will help you in your business projects and business development.
The times when governments have been showering people with all types of grants have passed. At least for a while. But that does not imply that one should forget the idea of getting small business grants.
Everything is possible with wise approach; small business grants including.
Read this blog for more helpful tips about grants, how to apply for grants, grant examples, traps and ticks of the grants. This information will help you to get small business grants or any other grants easier.