Advantages and disadvantages of venture capital


Published on

venture capital and its advantages

Published in: Business
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Advantages and disadvantages of venture capital

  1. 2. <ul><li>Venture capital provides the funding that a company needs to expand its business. It also offers a number of value added services. </li></ul><ul><li>The primary advantage of venture capital is that they allow entrepreneurs to build their company with OPM. </li></ul><ul><li>The venture capitalist then hopes that your company increases in value and ultimately has a liquidity event (e.g. IPO or sells to another company) so that they can get a return on their invested capital. </li></ul>
  2. 3. <ul><li>In addition to capital, venture capitalist can be an invaluable source of information, resources and contacts to help you be successful. More times than not, venture capitalists have experience building companies themselves so they can really help you think strategically about how to grow and be successful.  </li></ul>
  3. 4. <ul><li>In addition to being a source of funding, an advantage of venture capital is that a number of value-added services are provided to companies: </li></ul><ul><li>Mentoring </li></ul><ul><li>Alliances </li></ul><ul><li>Facilitate exit </li></ul>
  4. 5. <ul><li>Most venture capitalists seek to realize their investment in a company in three to five years. If an entrepreneur’s business plan contemplates a longer timetable before providing liquidity, venture capital may not be appropriate. Entrepreneurs should also consider: </li></ul><ul><li>The  disadvantage  is that securing a deal with a VC can be a long and complex process. You'll be required to draw up a detailed business plan, including financial projections for which you're likely to need professional help. You may be able to get support from your local Business Link for this. Also, if you get through to the deal negotiation stage, you'll have to pay legal and accounting fees, whether or not you're successful in securing funds. </li></ul>
  5. 6. <ul><li>Only you can decide whether it is worth giving up part of the ownership of your business in return for finance to take it to the next level. Disadvantages are: </li></ul><ul><li>You must generate the cash needed to make the agreed payments of capital, interest and dividends. This can create great financial pressure. </li></ul><ul><li>You will have to agree to certain restrictions as part of the deal, such as the amount you are paid and your involvement with other businesses, and you will usually need your investor's consent to major decisions. </li></ul>
  6. 7. <ul><li>Your investor may insist on putting a representative on your board (or having power to do so if financial targets are not met). For VCs, this is usually a non-executive director who will only take an active part if things go wrong. A business angel will usually want to be on the board himself, and will play a more active part. </li></ul><ul><li>You are under greater scrutiny generally, particularly in relation to your compliance with your duties and responsibilities as a director, e.g.: to act in the company's best interests, and disclose personal interests in your company's affairs. </li></ul><ul><li>Your investor will expect regular information and consultation to check how things are progressing. For example, monthly management accounts and minutes of board meetings. </li></ul>
  7. 8. <ul><li>Control </li></ul><ul><li>Intrusion </li></ul><ul><li>Pricing </li></ul>