What is Venture Capital?

Venture Capital is also known as risk capital. The investor puts wealth into a company that he sees potential in and where he thinks he can get a good return. In fact, the capital is always exchanged for shares. Sometimes it is issued as a loan. A high interest rate is generally charged on this loan.

The Dutch term for Venture Capital is venture capital. This term comes from the high risk associated with this capital. It is daring to invest in a company that you are not sure whether it will be profitable beforehand. For example, because there is a good chance that it will 'fail', because the company, product or idea has not proven itself yet.

It is precisely the high risk that comes with this that makes it interesting. The return for the investor is high if the company, product or idea succeeds, because the investor has often been able to enter a relatively low valuation.

Identifying capital needs

Before you start looking for an investor, there are two things you need to have in order. Number one is writing and visualizing a strong business plan. Number two is identifying your capital needs. You can make this clear by making a liquidity and investment budget.

The liquidity budget shows the expected cash flow. You can therefore immediately see when liquidity problems can arise. At that point, you need extra capital. The investment budget consists of all expected investments that will take place.

The capital required plus the expected investments are the total amount of financial resources you need. It is smart to calculate a surplus of 10% to 20% on this. This way, you can be sure that you have sufficient capital.

The benefits of Venture Capital

• ‍Possibility to finance when the bank says no
  

The bank prefers to take as little risk as possible. They request a lot of documents that prove that your company has proven itself. A starting company or new product cannot prove itself yet. That does not mean that there is no chance of funding. A capital injection by a venture capitalist can be a good option for putting your company or product on the market.

• Investor brings knowledge and experience

Some investors would like to share their knowledge and experience with the entrepreneur. That's why it's smart to find a venture capitalist who is already familiar with the industry or the type of company/product. He or she can guide you to build your business in the right way.

• ‍It gives your company a strong balance sheet position

Venture Capital is included in the solvency of the company. That means you can count it under your own funds. As a result, as a (starting) entrepreneur, you have a strong balance sheet position. This can be an advantage if you want to raise additional capital later from the bank or an alternative lender.

The disadvantages of Venture Capital

• ‍Relinquishing shares no longer means full control

When it comes to ordinary shares, they provide the right to control and dividend. Venture capital financing involves more than just money. You should be aware of that. In fact, a shareholder is a co-owner of a company.

• ‍The proceeds are distributed to all shareholders

Shareholders are entitled to a profit distribution. At the annual meeting, the amount and method of payment of the dividend will be determined. This can be determined annually, but can also be determined for a longer period of time.

• ‍Long journey before Venture Capital is complete

Financial space via a Venture Capitalist cannot be arranged within a few days. First, you need to write a good business plan, find investors, and pitch your plan. Negotiations must then be made to reach a good deal. Together, this can take a few weeks to a few months. The result, on the other hand, can certainly be worthwhile.

Direct lending as an alternative

Direct lending is not an alternative to a capital injection through venture capital. That doesn't mean that when you search for Venture Capital, you can't get funding from a direct lender. Direct lending is another way of financing.

Direct lending is a quick way to arrange a business loan. You borrow money, pay interest on it and you have to repay everything within the term. As a starting entrepreneur, it is difficult to secure financing.

For a funding with Swishfund your company must meet a number of conditions. For example, you must be registered with the Chamber of Commerce for at least 12 months and have a minimum annual turnover of €50,000. You can then request an amount of between €3,000 and €1,000,000 with a duration of up to 24 months.

The advantage of a direct lender is that you have already received the financing within one to three days. Curious about other benefits of direct lending? We have them summarized in this article.

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