The main characteristics of venture capital are the following:
Venture capital generally provides funding to businesses that are in their early stages of development. The main receptors of these funds are small and medium businesses because they are on the rise and have great reach of development compared to already established businesses.
Small business will receive funding through venture capital in the form of shares. The investor will buy a part of the company and in exchange they will use the funding to expand or develop their operations. Venture capital allows the owner of the business to not resort to financial institutions for commercial loans.
Venture capital involves little cost for the small business. They would only need to pay for the cost of the transactions if they are any. The benefits are greater than the costs.
The investment is usually directed at sectors employing innovations of various kinds. For example: a venture capital entities like Eurocorp invests only in the sectors of biotechnology, biogenetics, hotels, tourism and leisure. Link is another company investing in sectors such as fisheries, water treatment or ecotourism.
One difference between venture capital and other type of capital coming from more conservative financial institutions is the risks they are willing to take to perceive higher profits.
Risky investments are appealing to venture capitalist because they offer them substantial benefits when the business becomes successful in their lines of work. Venture capitalist will recover their investment when they sell their shares at a much higher price than the one they bought them for.
It should be distinguished from the term that we are dealing with other terms, basically, of risk capital (venture capital), participatory loans, or just loan and take money from investment trust.
Commercial loans may provide a greater guarantee to the business owner in that he or she will receive the money.
Finally, the distinction between investment trusts and venture capital is still entailing both a certain level of risk, the former is associated with a commitment to improve the situation of the company nor assisted in the field of corporate governance such as risk capital. Consider the credit risk capital required as participatory graduated that while these are a liquidity provider for the company, it is a financial cost, negotiated a contract.
