Understanding Venture Capital

Venture capital is one of the various available financing choices that can be immensely beneficial mostly for new entrepreneurs. Here, the money is invested by venture capitalists to help new business owners and those looking to expand their business. As venture capital mainly encompasses start-up firms, it leaves a significant room for potential risk.

New entrepreneurs often tend to seek venture capital for financing because of the inceptive nature of their business that includes no public image, being risk-oriented and with no proven record. With so many negative aspects, start-up firms are often turned down by conventional money lenders like banks and other financial institutions. Unlike traditional financing sources where entrepreneurs only need to repay the loan amount together with interest, venture capitalists usually look for ownership allocation in the company in lieu of the invested amount.

Venture capital firms that invest the money involve professional and knowledgeable investors who understand the criticalities of funding and developing start-up firms. The money that is invested can come from a wide range of sources including wealthy individuals, public and private pension funds, corporations, foundations, endowment funds etc. The investors in venture capital are considered as limited partners of the venture capital firm while venture capitalists are considered as the general partners. General partners are the responsible ones for working with the start-up businesses and for managing the funds. Role of the general partners mainly encompass working actively with the entrepreneurs to make sure that the business is developing in a profitable manner.

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