Business and Finance

What is venture capital?

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Every business needs capital to grow, and venture capital is a great way to get funding during startup stage. Here are 4 facts about venture capital.

By Crecencia Chauma for Africa Report

1.Venture capital is usually given to companies in their growth stage: Entrepreneurs usually approach venture capitalists when they first start their businesses. An exception is given to technology firms, who generally get funding in the start-up phase.
2.The higher the risks, the greater the return: If your business is in its early growth stage, it entails a riskier investment than one in its later growth stage. The rate of return will therefore depend on the risk involved.
3.Venture capitalists invest in firms using debt instruments: This lets them gain long-term appreciation on investments within a specified time.
4. In order to receive venture capital, you should have:
a) A good management team with a proven track record.
b) A solid business opportunity; profitable, feasible and unique.
c) Potential growth in terms of the markets and feasible exit options.
d) A strategic fit of your company to the investor portfolio in terms of size and stage of life-cycle.

Venture capital is a driver of economic growth. By understanding how it works, you can see how it applies to your business – and whether you should consider seeking it.

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