Venture capital is direct investments practically in cooperation management enterprise since the investor becomes the co-owner of this enterprise. Venture means brave with granting of investments without bank or other guarantees, but in any way risky since the investor never will go on unjustified or too big risk.
Venture capital financing is a method actively used for reception of investments, though also less widespread, than crediting. Venture capital firms, for example, investment funds or simply very well-founded persons, like banks supply you with the financial resources necessary for your business, but they do it differently.
Creditor banks: they expect that you return the borrowed money with rather small percent, but you absolutely necessarily should give to bank a guarantee acceptable for it. Venture capital firms are the owners: they become co-owners of your enterprise, investing the capital invested by them in this enterprise and receiving for it a decent share fraction of the enterprise. While banks can give and short loans, venture capital firms invest the capital for longer term without demanding thus from you bank guarantees, that is take it on itself a great risk for which you need to pay. Usual, these firms count that they invest for 5-7 years, but after or during this term they should receive return of the invested means in 3-5 times bigger size. Accordingly, your project should be so profitable to provide such big return of invested capital. It means that you should have not easier project and the super-project on profit earning.
The investment purpose of the Venture Investor is an investment of money in the enterprise and the subsequent to it organization of its effective work so to lift enterprise cost, and, hence, its shares that in the specified 5-7 years he could sell shares belonging to it and to receive for them the sum of 3-5 times exceeding the capital invested by him, as will constitute the specified return of the invested means. Other difference of approaches consists in that bank estimates the enterprise from the point of view of solidity of its present position and the Venture Investor estimates it from the point of view of the future of this enterprise and capability of administration to implement this future. Unconditionally, venture capital firms are interested in many of the same factors which influence bankers in their analysis of requests for reception of credits.
All financiers want to know results of last activity, validity of quantitative inquiry of financing and planned incomes, detailed planned calculation of use of investments, and also a planned financial position of the enterprise. But the Venture Investor gives much more greater attention to professionalism of a management, the characteristic of the goods or services, a condition and market prospects, than banks.
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