‘Venture capital1’ - what this mean?
Risk capital is long-term investment into an enterprise‘s equity with the purpose of supporting its rapid growth and development. This type of capital comprises money resources offered by an external investor for the purpose of financing new, rapidly growing and prospectively profitable companies. It differs from raising finance in a form of an ordinary loan. If an entrepreneur gets an ordinary loan from a bank then he or she has to pay back the principal and accrued interests either success or failure. The venture capital investors are prepared to undertake higher risk than the commercial banks in the exchange for share in the company’s value. Thus, risk capital investment allows entrepreneur to share and adjust risks associated with the performance of business and cash flows between entrepreneur and the lender. Venture capital is usually provided by the venture capital funds that are enterprises founded for a limited period of time especially for this purpose.
The main character, which makes risk capital fundamentally different from other types of financing, is the fact that the lender becomes a business partner, who shares business risks, interests and certain amount of the profit. Risk capital is the amount of money which investor is ready to change against equity if an investor is confident in the future success. As very important fact we have to mention that for the purpose of venture capital, equities of the enterprise, which are related to financing, can not be listed or otherwise traded publicly. This feature makes risk capital available to wide range of enterprises – not only for large companies, but also for SME and even micro-enterprises. …
