Venture Capital Financing

Feb 12, 2008 ยท 2 mins read
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Financing a business is the one major stumbling block that may kill off even the brightest of ideas, access to capital is a critical ingredient for any business project to see the light of day. Venture capitalist firms breathe life into new business project by providing finance for viable ventures against a lucrative return, and they go beyond just providing the much-needed capital.

They assist the applicant(s) with the technical elements of starting and running a profitable venture, like marketing and legal issues. This process begins with the evaluation of the business idea and its merits, the venture capitalist will carry out thorough investigations, if they believe it has potential. The following stage involves drawing up a business plan, and the forming of a managing team and market researchers are assigned to provide a proper market potential analysis.

The venture applicant will need to provide a good business plan and ascertain a proper forecast of the revenue needs, such as the actual cost of developing and maintaining the project and the profit to be earned over a period of five years. The venture capitalist will accept or deny funding the project based on the facts on the ground and if approved, the venture will resume operations under watchful eyes of the venture capital firm, mostly through an appointed representative in the management board. The real test for the product or service begins as production kicks off; the true mettle of the venture comes face to face with the opposing actions of competitors in the sector/industry, many of whom will be established entities, with in-depth knowledge of the respective market(s).

The quest to reach the break-even point will test the abilities of the management team, well-calculated decisions need to be made in a show of capacity to the venture investors, the agreement will still be fragile and any sign of incompetence could result in the collapse of the investment contract, delays or the restructuring of the management. Upon successful completion of the development stage, the management team faces expansion targets by further squeezing its teeth into market steak, issues around extensive marketing campaigns and cost-effective production will need proper analysis.

It is ample time to take full advantage of the venture strengths, and doing away with the weaknesses of the business thus far. All things being equal, the venture can either start introducing new product lines/or services and consolidate its functions.

The final stage of the venture financing process will see the investor initiating the exit plan, opening the doors for it to go public, but the risk of a fall out will still be there, or if unsatisfied, further steps will be deemed necessary to achieve the set goals.