Venture capitalists are the investors usually provide investment for start-up companies or assist small emerging companies who have high potential for growth but do not have access to the public funding.
The venture capitalist earns capital by owning equities of the companies they have invested in. Typically venture capitalists invest after instance of the first round of growth fund (also known as Seed Funding). In contrast to angel investment and emerging seed incubation, venture capital is an attractive investment for early-stage companies having definable operating history and is too immature to raise capital from the public funding or to become eligible for bank loans and complete debt offering.
Venture capitalists take high risk by investing in start-up and small sized organizations, so in exchange they usually secure significant level of control over the company’s management policies and decision making by owning considerable private equities of the particular firm.
The selection of right venture capitalists can contribute effectively; raising desired capital funding as well as providing expert mentorship advisory service to the firm in order to boost growth rapidly. Obtaining venture capital is largely different from lending loans and debts. When taking loan, company must ensure the interest and repayment of the debt, irrespective of the business success or failure. Whereas, venture capitalists are the shareholder of the firm and they rely on the company’s growth and profitability for getting ROI. In many cases, venture capitalists exits from the business by selling his/her shareholding to another owner.