In its simplest analysis, venture capital is simply money that is offered by venture capital firms or professionals that invest money in younger companies that are rapidly growing and that have a high possibility of future development. The venture capital firms, according to Matias Campiani, are basically huge parts of the economy as they finance small businesses and companies that are interested in innovating something or launching new products. They also offer financial support for numerous existing companies.
Venture capitalists practically stand in to offer strong financial support to fast and new growing companies. They can also work with those that need some assistance when developing brand new services or products.
A venture capital firm will almost always have a long-term plan in place. It is often taking higher risks as it intends to earn a much higher reward. The venture capitalists are not passive financers. They assist the companies they invest in through an active participation. Capitalists can get involved in management, marketing and strategic planning. In many situations these specialists are called in as experienced entrepreneurs, not just as financers.
The one thing that most people think is that the venture firm is investing in new businesses that are in an initial growth stage. This is what happens most often but a venture capital firm will often invest in a company that is in another business life cycle. Capital can be opened during first or second business development stages. Investing before products are launched is quite common. In this case the investment is made with the purpose of helping the company grow instead of expanding.
Numerous venture capital firms exist right now. They are organized in various ways, usually with limited partnership being common. The idea is that the venture capital firm is becoming a general partner for the company it invests in. Such a partnership is normally handled by venture capital firms known as “private independent firms”. It is also possible that the venture firm has a joint venture. As an example, there is one company with really good software product but without the possibility of distributing it. When this is the case, the company works with a joint venture firm that offers the needed distribution technology. A venture firm will only be allowed to exit the partnership after maturity or when partnership deal is expired.
To put it as simple as possible, the venture capital firm is at its core a partnership. The firm offers finances and resources that are needed to grow. However, the main goal is to make money. This means the venture capital firm will do all that it can in order to get a very high return on the investment made. Such an approach can lead to different problems. It is really important that the entrepreneurs interested in venture capital investments understand everything associated with the deal that is signed.
Lawyers have to be involved and every single line of the contract has to be read. IF there are problems with the contract, after signing they cannot be solved.