When a company starts or achieves a good business idea, it is common to face problems to obtain financing. One of the alternatives, regardless of capital, is to look for external capital. Now, what options are asked to a company that is starting? One of the most common today is risk capital. Today we explain what a risk capital fund is about, or what is the same: the entry of new members to the new business adventure.
As a general rule, banks and credit entities normally finance companies that are already underway and generate income, but it is not so common that they finance newly created SMEs, with rapid growth needs, or that already have a high bank indebtedness level.
The alternative for companies, in any of the previous situations, is to resort to risk capital investors. Risk capital investors are natural or legal persons with sufficient monetary capacity to address project financing but also represent greater returns. The maximum of the investment must be remembered: “A higher expected performance, greater risk assumed.”
Therefore, risk capital is capital contribution, of own resources. The risk capital investor enters as a shareholder in the company, but usually does it temporarily. In fact, the usual thing is to remain in the company for about six years.
RISK CAPITAL CHARACTERISTICS
The risk capital is characterized by:
- The investor makes his contribution participating in the company’s share capital.
- It is mainly aimed at small and medium enterprises.
- The investor is willing to assume a greater risk than the other “players” of the credit market.
- The capital of investors is mainly allocated to entrepreneurs in early phases, growth projects or with traditional banking debt saturation.
- The risk capital is usually associated with companies and projects with high component of research, development and technological innovation, although this is not necessary that this is always the case.
RISK CAPITAL INVESTMENT TYPES
There is a standardized classification on the types of risk of risk risk.
- Seed capital. This type of investment is made in technological projects that aspire to make their idea viable and where there is still neither marketing or production.
- capital start-up. This type of investment is made for business start projects with uncertainties regarding the viability and profitability underlying this type of investments.
- Capital Expansion. This type of risk capital is made for investments that have a demonstrated viability and a real development opportunity.
How to sell your idea to a venture capital investor
If you need a venture capital investor, there are companies that help you manage your idea and get in touch with investors, but be careful! It’s not about getting in touch and that’s it. A risky capital inverter expects you more than the adventure of your idea: expect provisions and planning. That is why we recommend that you look for an advisor experienced in this type of operations, to help you define your project and give credibility through an economic justification of weight.
From experience, both in management and advice, and in investment in these types of companies, the best way to explain and sell your project to potential investors, that is, defend your interests against your future partner -which no Forget that at the time, he legitimately aspires to buy cheap-, it is through a good viability plan. Once the objectives are achieved, the treatment is again, again and take your time to correctly design and implement the transaction in legal and fiscal terms.
If you are interested in getting financing of any kind, including the risk capital channel, we encourage you Here or in info@verumasesores.com.
We promise to help you in your adventure.
Spielberg, Steven. (1981). Indiana Jones: In search of the lost ark. – Buzzfeed.com
