Venture capitalists are the individuals or independent firms that provide venture capital to the growing and expanding businesses. Venture capitalists provide money to the businesses that are still in growing phase but offer promising results in future.
How a Venture Capital Invest their Money
Venture capitalists tend to invest money in upcoming businesses and firms which they think have high potential of returns in future. There are two conditions on which generally the venture capitalists offer their money to the growing businesses. These conditions can be explained as under:-
- One condition is that the venture capitalists will have ownership in the company depending upon the amount of investment invested by the venture capitalists in the company
- Another condition is that the venture capitalists will receive a specific rate of return on their invested money
If the venture capitalists think that the company will maintain a growing yield of rate of return they will keep their investment as well as their ownership in the company. However in a number of cases a venture capitalist only maintains his ownership in the company until the company offers its first public offering.
Importance of Venture Capitalists
Venture capitalists are the source of serving companies with money that are trying to launch a startup business. Venture capitalists are providing companies with capital that is not loan as the company is offering capital on a specific yield of return or the ownership of the company as well. The attraction for the venture capitalist is that he may receive a very handsome return on the investment when the business will start earning a huge amount of revenue. There is another secondary advantage for the venture capitalist is that he has an ownership in the company and also have a voice in the matters of the company as well.
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