Advantages of venture capital funding as against bank loan start up capitals.
Venture Capital Funding
Seed Financing also known as seed funding, it is a form of securities offering in which an investor purchases part of a business. The term seed or seed money suggests that this is an early investment, meant to support the business until it can generate cash of its own, or until it is ready for further investments.
Content: Start up capitals or the venture capital funding is a sort of finance that the companies with high potential for growth seek to start-up their business. The reason behind the same being the fact that though they might be having potential for growth, but they still are too small to raise money on their own. The venture capital funding companies are available in abundance in the market today and they often invest in a business based completely on the potential that the company flaunts as according to the venture capitalists and the stage that the company is in. The only reason that the venture capitalists will ever be interested in providing start up capitals to businesses by financing them will be if they seriously believe that the company has some potential to attract customers and grow and make money in the long run. The advantages of taking up venture capital are as under:
As against loans: The venture capital fundings for start up capitals are better than the loans in a way that they are not as an obligation to be paid for or given a fixed interest on, if the company is not doing very well in the starting years. The bank loans if taken are to be paid back after a fix time period and interests are to be paid on the whole sum till then.
Return on Investment: The venture capitalist expect a proper return on investment in the long run, they do not expect a fixed interest on that as is to be paid on the bank loans. The venture capitalists are sort of investors and not the creditors. They invest in the company against the shares of the company that gives them rights in the company as against the creditors or banks who do not invest rather provide a loan which gives them no rights in the company rather makes sure that they get their money back in time.
Share the risk: As the venture capitalists invest in the company against the shares of the company to arrange funds for business, they get to have the rights in the business which also means they share the risks of the company. The whole concept means that they could get the shares in the profit of the business and are also given rights in the business, but then they also have their shares in the risks of the business, should it face losses.
No obligation to pay back: The best part about taking up venture capital funding for arranging the funds for business is the fact that the company does not have an obligation to pay back as against the bank loan start up capitals. If a bank loan funds for business, you are obliged to pay back the same as a whole after few years or in installments.
Using bank loans to arrange funds for business is only considered when a company knows that they are sure to get enough returns to pay back for the interests and the installments otherwise it is always better to take up venture capital funding for start up capitals.
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