Sources of finance used to fund business activity is a subject that is likely to be of interest to any entrepreneur. And there are several different options when it comes to finding ways to finance your startup. One of them is venture capital. You may have heard of venture capital or venture capital firms, and if you do not know what they refer to, this article can be useful in helping you learn a little bit about what venture capital is and how it works.
So, let’s start by explaining what venture capital even is. Venture capital, which is also referred to as Risk Capital or Patient Risk Capital, is a type of financing provided by investors to startups and small businesses believed to have long-term growth potential in exchange for an equity stake in the said business. And while venture capital generally takes a monetary form, it can also take the form of technical or managerial expertise. In general, venture capital is provided by high net worth individuals, investment banks, and investment institutions and is pooled together by venture capital firms.
It’s important to know that there are three main types of venture capital funds. The first type, early-stage financing, encompasses seed money or seed financing, something of interest to many starting entrepreneurs. Seed money refers to a small amount of money that an entrepreneur receives in order to be eligible for a start-up loan. Early-stage financing also includes startup financing, which is used to help startups finish the development of their products. First-stage financing also falls under early-stage financing. The second type of venture capital is expansion financing, and the third is acquisition financing or buyout financing.
In summary, venture capital can be a great source of financial capital for an entrepreneur. And recently in the MENA region, there has been an increase in venture funds in an attempt to encourage entrepreneurship and innovation. So get your business plan ready (and if you do not have a business plan, check out our short article on how to write one) and start submitting it to different venture capital firms.