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VENTURE CAPITAL |
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> Informations on venture capital |
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Venture capital can provide long-term committed capital to businesses.
Venture capitalists purchase shares in growing businesses on behalf of
institutional investors. Venture capital investors are tied in to the
long-term success of the business, obtaining their return by way of
dividends but principally by selling their shares in the business in due
course.
Venture capitalists seek businesses capable of growing rapidly within (say)
five years. These businesses must be able to demonstrate a competitive
advantage in a chosen market and be managed by experienced and ambitious
teams who are capable of turning their business plan into reality.
Venture capital is not suitable for ‘life-style’ businesses, where the main
objective is to provide a standard of living and job satisfaction for the
owners. These businesses are unlikely to provide the financial return to
make them of interest to venture capitalists.
Venture capitalists do not usually get involved in the day-to-day management
control of a business but will assist with longer-term strategy. The
combination of capital and experienced input from venture capital executives
can help businesses to achieve their growth plans and increase value to
shareholders. Although the management team may own a smaller ‘slice of the
cake’ this can be compensated by the growth in the overall value of the
business.
The British Venture Capital Association provides a detailed guide to the
venture capital process, from targeting the appropriate investor to exit
choices. This includes advice on preparing a business plan and venture
capital terms. Their website includes a number of free publications
including - ‘A Guide to Venture Capital’.
Informal investors, usually called ‘Business Angels’, are often wealthy
individuals searching for profitable investment opportunities. Usually with
business backgrounds, they are willing and able to make small scale equity
investments in SMEs. Many are also able to provide hands-on management and
other expertise which can be of benefit to a small business. The SBS
supports the National Business Angels Network to increase the flow of
informal investment to SMEs by providing a route into the business angels
market for the banks and other intermediaries. In addition, a new group has
been formed to represent the networks - the Business Angel Networks
Association (BANA). SBS is working with the two organisations to ensure
co-operation and co-ordination.
Sources of Venture Capital
The British Venture Capital Association provides a search engine to identify
suitable investors by market sector, geographical area and investment size.
The European Private Equity and Venture Capital Association promotes the
venture capital industry in Europe and includes a directory and links to
members.
Your Business Link local provider local provider may have information on
local venture capital organisations that are not members of the British
Venture Capital Association.
Government Assistance
Government does not invest directly in small businesses, but provides
incentives to individuals or institutions investing amounts of less than £1m
in unquoted companies.
Corporate Venturing
'Corporate Venturing' involves investments by larger companies in new or
expanding small businesses. Information about the pros and cons of this as a
way of raising finance are highlighted in the document entitled 'Corporate
Venturing', produced by the SBS. |
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