What is Venture Capital
Venture capital provides long-term, committed, risk sharing equity capital, to help unquoted companies grow and compete.
It seeks to increase a company's value to its owners, without taking day-to-day management control.
Although lenders (eg. banks) have a legal right to interest on a loan and its repayment, irrespective of the borrower's success or failure, the venture capital investor's returns are dependent on the growth and profitability of the business.
Owners will need to sell some shares in their companies (generally a minority stake) to the venture backer, who may seek a non-executive board position and attend monthly Board meetings.
Venture capital investors not only provide equity capital, but experience, contacts and advice when required, which sets venture capital apart from other sources of business capital.
According to the Dutch VC Association
Venture capital is risicodragend vermogen dat ter beschikking gesteld wordt aan niet-beursgenoteerde ondernemingen om uiteenlopende activiteiten in diverse ondernemingsfases te financieren.
According to the German VC Association
Leistungsfähigkeit und Innovationskraft von Unternehmen hängen wesentlich von einer soliden Finanzierung ab. Insbesondere die angemessene Ausstattung mit Eigenkapital sichert vor allem mittelständischen Unternehmen notwendige Spielräume und Unabhängigkeit für unternehmerische Entscheidungen. Beteiligungskapital stellt sich die Finanzierung der gesamten Bandbreite unternehmerischer Tätigkeit mit Eigenkapital zur Aufgabe. Die Finanzierungsanlässe reichen bspw. von Unternehmensgründung bis zur Expansionsfinanzierung und der Begleitung eines Unternehmens auf dem Gang an die Börse. Seinen Ursprung hat der Begriff Beteiligungskapital im amerikanischen Begriff Venture Capital. Landläufig werden häufig auch die Begriffe Risikokapital und Wagniskapital als Synonyme für Beteiligungskapital verwandt.
According to the Australian VC Association
Venture capital is a means of financing fast-growing private companies. Finance may be required for the start-up, development/expansion or purchase of a company via a mechanism such as in a management buy-out.
Growing businesses always require capital. There are a number of different ways to fund growth. These include the owner's own capital, arranging debt finance or seeking an equity partner, as is the case with venture capital.
With venture capital, the venture capitalist acquires an agreed proportion of the equity of the company in return for the requisite funding. Equity finance offers the significant advantage of having no interest charges. It is patient capital that seeks a return through long-term capital gain rather than immediate and regular interest payments.
Venture capital investors are therefore exposed to the risk of the company failing. As a result the venture capitalist must look to invest in companies that have the ability to grow very successfully and give higher-than-average returns to compensate for the risk.
When venture capitalists invest in a business they become part-owners and typically require a seat on the company's board of directors. They tend to take a minority share in the company and usually do not take day-to-day control. Rather, professional venture capitalists act as mentors and aim to provide support and advice on a range of management and technical issues to assist the company to develop its full potential.
Surveys in the US consistently rate the management support as the most important contribution of a venture capital firm. There are many sources of capital, but only a venture capitalist can provide experienced management input gained by helping many other companies successfully conquer the inevitable problems and growing pains.