Providing value is the main aim of a venture capitalist. Ascertaining that value can, in fact, be added to the company is one of the goals of this due diligence process
Venture capital describes money invested in a company that displays high growth potential, and it is well known for its use in the technology and medical research industries. Companies seeking venture capital are often at a specific stage of growth, but lack access to, ‘traditional’ sources of finance in order to develop, preferring instead to forgo some of the equity in their business.
Lack of a significant trading history on which to base decisions makes venture capital risky for the lender, but some of this risk is mitigated by having strong growth plans. At present we are seeing a surge of FinTech start-ups fitting this description; new companies but with strong growth potential, invariably in industries relating to mobile payments, money transfers, loans, fundraising and even asset management.
Providing a significant return on the capital invested is the main aim of a venture capitalist. Ascertaining whether that return can be best be provided by the company is one of the goals of this due diligence process.
Venture capital investment in practice
Investors tend to reap their rewards when a company is sold, but may also need the reassurance of an exit strategy prior to this stage, with a minimum return on their investment in mind.
On the other side of the coin, the organisation receiving the funding will expect to benefit from their investor’s business growth experience, or a particular area of expertise linked to the industry sector in which the company operates.
On the whole, venture capitalists are looking for market share or invariably new technologies with extensive growth potential and international sales. We can advise VCs themselves or businesses looking for venture capital investment.