Venture Capital - Helping you to get access to capital
Venture capital refers to early and relatively risky capital injections with the potential to generate high returns on investments. Venture capital is often invested in innovative companies with a significant growth potential and is used as a tool to provide the liquidity that companies need to realize their growth objectives, be it product development, marketing of a new product or something else.
What is venture capital?
Venture capital is a short-term investment, as venture funds already start preparing for an exit (sale of newly acquired capital shares) at the time of investment. For example, it could be natural for venture funds to make an exit following an initial public offering of the target company's shares.
Traditional venture investments usually span a period of between 2-10 years. Venture investments involve an injection of share capital, which has the obvious advantage that the company does not take on debt in contrast to debt financing for example.
Who makes venture investments?
Venture investments are often made by venture funds or business angels with the purpose of acquiring capital shares in the target company, which can be sold at a later point in time at a higher valuation.
Following the investment, venture funds and business angels will often take part in setting the direction for the target company, and thereby provide the target company with access to both capital and expertise - in the form of specific industry knowledge and other know-how for example.
Venture funds and business angels will try to condition the investment on certain rights in the target company, which they deem necessary and appropriate to protect their investments. As a business owner, it can therefore be a difficult decision to invite new investors into the company since existing owners have to give up significant authority over the company. Hence, it is crucial to make some reflections before inviting new investors into the company - it is important to team up with the "right" partner. Therefore, it can be a good idea to engage a professional advisor, who can be used as a sparring partner and help you negotiate the optimal terms for you to be able to focus on the company's future growth journey without unnecessary concerns.
The process for venture investments
In many ways, the process for venture investments is similar to the more ordinary way of acquiring capital shares, where the parties involved enter into contractual agreements. Based on signed non-disclosure agreements, the sales material is sent to potential investors, who then conduct due diligence on the company. The sales material contains information about the company's financial statements, the market and the company's market potential, the competitive landscape, product descriptions, descriptions of the organization, etc. Following this, a letter of intent (LOI) is prepared to draw up the framework of the negotiations on the final terms of the investment agreement.
To ensure optimal terms for you as a business owner, it is always a good idea to consult with professional advisors who have the right expertise and experience to assist you through the process of raising venture capital.