Business

The Basics of a Venture Capital Firm

If there is one word that is most fascinating and music to ears for entrepreneurs, it is definitely Website. All over the word, the term venture capital has come to signify easy money that can be used to turn your business dreams into reality. This money is the preferred choice of most of the entrepreneurs. In contrast to the conventional loans that are to be repaid according to a schedule in the form of monthly installments, money obtained from a VC firm is repaid in the shape of stocks of the company once it has succeeded and grown.

 

Ideally it is a win-win situation for both parties

The repayment of venture capital seems to be very easy for entrepreneurs. It is mostly repaid in 3-5 years’ time after the company has become listed in the stock exchange after launching its IPO. In ideal circumstances, it is a win-win situation for both the VC firm as well as the start up as it gives a realistic chance for the company to grow and become successful. Venture Capital firm hopes to earn more than it would have by giving a loan at a specified rate of interest. Although venture capital carries a lot of risk for a VC firm, it also holds possibilities of large profits.

 

The success of a VC firm depends a lot upon the uncanny ability of its partners or managers to pick out future winners from a long list of applications that they receive every month. It is a challenge that every VC firm faces on a daily basis. Their decisions can also go wrong and they can result in big losses for the company. This is the reason why investors at a VC firm scrutinize applications of entrepreneurs very closely and approve only about 1% of these applications.

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