Venture Capital for Small Business
Venture capital offers a way for your business to grow. You will typically work with a firm that offers venture capital for small business – not all do. These firms will source investors who will provide a monetary investment for your company. You will then have access to the funds to make improvements, expansions, or other potentially high-growth changes.
Unlike traditional loans, you will not be leveraging only your own personal assets – you also have others’ investments at stake. As the stakes are higher, so are the possible returns.
Each firm that offers venture capital for small business will have it’s own requirements and procedures, however, generally speaking, you will need to submit a business plan to begin the process. If a firm is interested, they will perform due diligence to learn more about your company, the market potential, and valuation of potential returns. From there, you will receive a decision on funding and, if you secure the investment, the firm will become active in your company to implement growth strategies. Eventually, the venture capital firm will exit; it is a longer term investment (typically four to six years) but still temporary. For additional information and an overview of such a capital, types of investors, or practices, please visit www.sba.gov/content/venture-capital
Why Use Venture Capital for Small Business?
There are many funding sources in Philadelphia, that you may consider, and venture capital is unique in the marketplace which brings advantages that traditional loans do not.
For starters, banks work in leverage – not risks. When you take out a traditional loan through a bank, the bank evaluates the risk that you will default on your loan and also knows that, if you pay your loan as expected, they will receive X amount of payments (as determined by your APR and loan rate). Venture capital does not have that same guarantee, but it does have more large-scale potential should your business take off. It’s far from the guaranteed return that the bank has (barring a default), but it also has most likely for higher return. Because of that potential, venture capital firms are more prone to take on new start-up companies – this is one main reason that new businesses seek venture capital for small business, rather than traditional loans.
Additionally, with a traditional lender, you will pay off a standard loan with your own money, including a markup for interest and, potentially, an origination fee. In contrast, venture capital for small business will allow such firms to make money based on your success, in other words, based on what you earn versus a percentage of the amount they invest specifically. There is more potential for both you and the venture capital firm to earn big, but with that comes a higher risk for the firm.