Debitoor Dictionary

Accounting terms explained in a simple way

Over 150 Articles for Founders and Small Enterpreneurs

  1. Business angel
  2. Capital
  3. Revenues

Venture capital - What is venture capital?

Venture capital is a large amount of money invested in a startup with strong growth potential by a venture capital firm

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Venture capital is the funding invested by venture capitalists into a company they believe has high potential for growth.

Venture capitalists

The darlings of the 90s dotcom boom, venture capitalists are well known for their contributions to new companies, investing fairly significant funds to accelerate and improve growth. They represent the venture capital companies and actively work with the startup companies.

The backing of a venture capitalist usually means a considerable investment of funds, time, advice, and prestige.

They differ from business angels in a number of ways:

  • Venture capitalists typically expect owner interest in the company in exchange for investment.
  • Amounts invested by venture capitalists are usually £1 million and up.
  • Investment by a venture capitalist includes the backing of the entire firm. This includes board members, growth specialists, and more, who will take part in developing the startup.
  • Venture capitalists are usually interested in more established businesses, while angel investors will invest in the early stages.
  • Because of this, venture capitalists invest in businesses that are still considered high risk, but not as risky as those in which business angels invest.

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Where does the capital come from?

Venture capital firms specialise in collecting money from various sources to invest in businesses that have strong potential for growth and profit.

There can be multiple sources for the money invested in a company. The most common sources are public pension and endowment funds, other companies, funds contributed by wealthy individuals, and various foundations.

Why venture capital?

Gaining an investment from a venture capital firm means a significant influx not only of cash, but also professional advice, and will send a clear message that your business has done well - which can potentially attract buyers or those interested in a merger.

This investment provides the money and resources for rapid growth of a company and works towards increased revenues.

The downsides of venture capital

You’ve probably heard a story about a venture capitalist gaining majority control of a startup and implementing changes that aren’t particularly in the interest of the original owners.

While advice and guidance from professionals may sound like a great deal for a burgeoning business, venture capitalists tend to be extremely ‘hands-on’ and will make decisions based on what they believe is best for the continued growth of the company.

Venture capital and Debitoor

Managing your business finances impeccably is the first step to getting your company running smoothly. Good financial reports are crucial to venture capitalists when they are considering businesses in which to invest. Keep your business finances in order with Debitoor.