Types of Venture Capital Funding
The numerous sorts of working capital are classified as per their applications at various stages of business. The three principal kinds of working capital are early-stage funding, growth funding, and acquisition/buyout funding.
The working capital funding procedure gets complete in six stages of funding cherish the periods of a company’s development:
· Seed money: Low-level financing for fructifying and proving new idea
· Start-up: New firms requires funds for expenses associated with product and marketing development
· Initial-Round: Manufacturing as well as initial stage funding
· Second-Round: Operational capital provided for initial stage organizations that are selling products and not getting profit
· Third-Round: Also termed as mezzanine financing which is mainly used for money expansion in a newly beneficial structure
· Fourth-Round: Also known as bridge financing and it is proposed for public process financing.
Early Stage Financing
· Initial stage financing is categorized into three subdivisions namely: start-up financing, seed financing, and first stage financing.
· Seed financing is described as a small quantity that capitalist receives for the reason of being entitled to a startup loan.
· Start-up financing is specified to organizations to conclude the expansion of services as well as products.
· Initial Stage financing: Companies have already used all of the preliminary capital and require finance for starting business activities at full pace are key beneficiary of the Initial Stage Financing.
Expansion funding could also be classified into bridge funding, second-stage funding, and third stage funding.
Second-stage funding is provided to corporations for the aim of starting their growth. It’s additionally referred to as mezzanine funding. It’s provided for the aim of aiding a specific company to expand in a very major approach. Bridge funding could also be provided as brief term interests solely finance possibility still as a sort of financial help to corporations that use the Initial Public Offers as a significant business strategy.
Acquisition or Buyout Financing
The acquisition is classified into management funding and acquisition finance or buyout funding. Acquisition funding helps companies in accumulating all elements or overall company. Buyout or management funding assists a precise management cluster for getting the particular product of other company.
Advantages of Venture Capital
· They bring expertise and wealth to a company
· Large amount of equity finance is provided
· To repay money, the big business should not stand the obligation
· Addition to capital, it offers resources, valuable information, technical assistance for making business successful
Disadvantages of Venture Capital
· It is a complex and lengthy process
· It is an uncertain financing form
· As the shareholders become part owners, the control and autonomy of the initiator is lost
· Advantage from this kind of financing can be recognized in very long run
To cash out capital investment, there is a variety of exit options for Venture Capital:
· Promoter buyback
· Sale to another strategic investor
· Mergers and Acquisitions
Moreover, considering the high risk concerned within the working capital investments complimenting the high returns expected, one ought to do a basic study of the project being thought-about, deliberation the danger come back quantitative relation expected. One must do the preparation each on the working capital being targeted and on the business needs.