Venture capital for expanding businesses is an investment that a larger corporation makes in a business because the corporation sees promising growth and new product development. The larger firm believes this growth is an excellent opportunity to realize a good return on its investment. The venture capital corporation may be investing in the hope that the smaller company’s stock will rise or the company’s value will increase dramatically.
Venture capital can be an opportunity for more than a financial gain. Some larger corporations offer an alliance or support to smaller companies that will help them develop products that will benefit both parties. If a small company is on the cutting edge of new technology or is developing a product that will revolutionize an industry, then there may be a mutual benefit to helping the smaller firm to develop products that will generate income for both parties. Corporate venturing of this type usually does not involve any cash outlay. The larger corporation may have skilled workers and processes that the smaller firm needs.
Corporate venturing has been around for a long time. The number of companies involved is much smaller in the United States, corporate venturing has been a financing source for many years.
Corporate venturing has appealed to the growth sectors of our economy like medical supply firms, bio-tech and other technology companies. Often small companies can develop a product in these growth sectors that can get the attention of industry leaders with ways that will change the market place forever.
It needs to be said that venture capital doesn’t fall from the sky. Attracting professional investors is very a very difficult task. Some people who know their way around the industry and have a great business find it very difficult.
Professional investors don’t like to lose money; that is why the successful investors are referred to as professionals. Before an investor will invest money in a firm they want to know more about the company that the CEO does, and they have the ability and the professional help to assess any business that is in their sphere of interest.
They are looking for a solid record of income and profit. They want to see an expense to income ratio that is not too high for the type of business being conducted. If the firm is developing new technologies and products, then the results to date will be reviewed as well as the market potential for the products.
Investors will want to know that the management is solid and that turnover has been non-existent. They will want to understand the skill base that the firm has employed to see if there is enough talent to achieve the objective of the development effort.
A record of paying bills on time will be very beneficial. Investors like to see a solid financial footing for the work that is being done. Investing in a firm that is weak financially is an invitation to disaster for the investor. The firm that wants venture capital must be able to justify the amount they are asking for and be able to detail the use of the money. The firm must have a timeline or a project management chart that demonstrates what the firm expects to accomplish and when. The investor wants to know when he can expect to start seeing a return.
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