Venture financing form: peculiarities of risk venture capital investments
A special place in the system of closed mutual funds is occupied by risk venture capital investments. This form of venture capital financing has its own peculiarities, which should be taken into account in order to reduce risks.
These companies may act as investment vehicles for venture capital market activities.
In most cases, such companies have a form of ownership of a LLC or JSC, which does not allow their shares to be traded on an exchange or to be listed on over-the-counter trading.
This includes projects which, thanks to investments, are planning to offer innovative technological products on the market. And to start production, organize a marketing campaign and launch a project, they need specific financing conditions.
Like all non-public companies, these companies are characterized by stages of growth and development.
The first stage is the startup. In this case, the project is only recently formalized as a legal entity, has a sample of its product and attempts to release it on the market.
Early growth. Despite the fact that the product is already in the market, the company does not have a stable profit. At this stage there is an exit of the enterprise on break-even level.
Expansion (late growth). The company has already occupied a certain place in the market and needs to be developed and expanded. For this purpose it needs to have capital to increase production, additional market research.
The mezzanine stage involves attracting investments to increase capitalization and financial indicators.
Exit. At this stage, the enterprise has reached the highest capitalization value, and the management company sells the share that belongs to the mutual fund. The buyer may also be the company’s management.
The venture capital market itself can be described as a market of long money, where investments are quite risky. Investment companies help startups, which have potential and will bring more profit in the future. Interactions here are on a long-term basis.
This form of venture financing involves a number of participants.
Investors in venture CEIFs are any capable person or company that has capital. If a person has a certain amount, wants to invest it, but does not have sufficient knowledge and experience in this field, then he or she transfers his or her money to a management company of a venture CEIF.
Investors who act independently organize funds in another form.
The other participants are business angels. Such people have monetary capital and knowledge in order not only to finance risky projects, but also to take over elements of management of the company or to assist in its promotion on the market.