5 Benefits of Venture Capital in Developing Your Start-up

Understanding Venture Capital 

In a nutshell, venture capital is a type of investment that raises funds in the form of shares of a private company within a specific time frame.

This type of capital invested in cash that investors give to the company, and the company offers several shares to investors. The resulting risk is relatively high, but the profit is also high.

Before investing, investors should be aware that the company receiving the loan is high risk and does not meet the requirements of a public company to obtain a bank capital loan.

Venture capital is typically provided by well-established investors or financial institutions that raise funds from many people for investment purposes. Capital statements generally are provided to new businesses or startups.

Also read: What are The Difference between Expense and Cost in Accounting?

Six Types of Venture Capital

1. Seed funding

As the name implies, seed money or seed capital is capital invested to assist entrepreneur(s) in doing first activities for establishing a company. Therefore, this can encompass product research and development, market research, business, and the drafting of a business plan, among other things.

2. Start-up capital

Seed investment and start-up capital are frequently used interchangeably. There are, however, slight distinctions.

Typically, business founders obtain start-up funds after completing the seed fundraising stages. It can be used to develop a product prototype, hire key management professionals, and so on.

3. First stage, first round or series A

The first stage is available to companies that have a product and want to begin commercial  Sales Management System, marketing, and marketing.

4. Expansion funding

Expansion capital, as the name implies, is the money that a firm needs to expand its operations. The cash might be used to enter new markets, develop new goods, purchase new equipment and technology, or even acquire a new company.

5. Last-stage funding

Late-stage investment is available to enterprises that have achieved commercial manufacturing and sales success. Companies in this stage may experience rapid sales growth but fail to generate a profit.

6. Fridge funding

Bridge financing, also known as mezzanine financing, assists a firm in meeting the short-term expenses required to launch an initial public offering (IPO).

Here are Five Benefits of Venture Capital

Opportunity for Expansion of the Company

First the benefits of Venture capital allows a company to grow. Other methods, such as bank loans, would not have qualified for this. Bank loans necessitate collateral, and the borrower is obligated to repay the loan. In venture capital, however, the investors are willing to take the risk because they believe in its long-term success. As a result, venture capital financing is advantageous for start-ups with high initial costs and little operating history.

Valuable Guidance and Expertise

Aside from capital, venture capital can provide valuable guidance, expertise, and consultation. Typically, a member of the venture capital firm is appointed to the start-up company’s board of directors. This allows the venture capitalist to participate in the company’s decisions actively. Venture capitalists’ expertise and guidance can be beneficial because they have experience building and expanding start-ups. They can assist in developing strategies, technical assistance, and resources, among other things, to ensure the success of a business.

Helpful in building networks and connections

Venture capitalists have an extensive network of business connections. These connections may be beneficial to the growth and success of the start-ups. They can assist the startup in forming alliances with potential customers or business partners.

No obligation for repayment

If the start-up fails or shuts down, there is no obligation to repay the venture capitalist investors. As a result, venture capital is critical for new businesses. It does not place the repayment burden on the start-up, as is the case with bank loans.

Venture Capitalists are trustworthy.

Regulators strictly regulate venture capitalists. For example, in the United States, securities and exchange commissions govern the venture capitalist. The same rules govern them as other types of private securities investments. Furthermore, because depository institutions and banks provide many venture capital funds, know-your-customer (KYC) and anti-money laundering regulations may apply. It’s unusual to see a VC engage in unethical behavior.

Example of Venture Capital Company

500 Startup

An example of a venture capital company is 500 Startup. This company is a top-rated company because it was founded by Google, Facebook, and PayPal staff. This 500 startup turned out to be one of the investors in Bukalapak. 

Cyber agent Venture

The second is CyberAgent Venture, one of the foreign venture capital companies originating from Japan and has expanded to Indonesia. In addition, cyber agent Venture turns out to be a company that funds Tokopedia, a well-known market in Indonesia.

Conclusion

So far, we can all agree that venture capital is a type of investment fund that takes the form of equity involvement in a private company over a set length of time. There are also two types of approaches: methods based on how to provide finances and plans based on ownership.

The benefits of venture capital, as explained above, are to improve business activity and potential, make product marketing more efficient, liquidity, challenging, and profitable.

When the company receives funding, it is preferable to keep track of it in your business finances. This is critical since it allows future investors to report on your company’s annual financial statements. Assume, however, that you are having difficulty preparing financial reports. In that situation, Accounting Software from HashMicro can aid you in handling complicated financial accounts, cash flows, or money.

This system can help you monitor your business’s overall financial condition, including income, cash balance, accounts receivable, accounts payable, and others. What are you waiting for? Try now!