What is the Venture Capital Firm Capability
June 27th, 2010 | Author: Admin
While the terms and conditions of venture capital are not standardized, there are some salient features of the agreements of venture capital. The venture capital is inclined to pose a high degree of risk in the expectation of a high rate of return. The signing of venture capital, in addition to providing the funds, takes an active interest in the guidance of the recipient company.
The venture capital firm normally plans to liquidate its investment in the recipient company after 3 to 5 years. Normally, the promoter of the recipient company is given the first option to acquire the capital investment in the power of the venture capital firm.
Venture capital firms can raise funds from different sources. The important sources in the long term of the finances are the issue of shares of capital and the preferred shares of bond issue of various types, the increase in loans from financial institutions and the generation of reservations.
Venture capital firms may use different combination of these sources, whereas their relative cost and availability and its impact on the value of the company. As a result, a company can have patterns of the capital structure, such as shares of capital only, equity and the preferred shares, equity and bond, equity capital and reserves of the preferred shares, equity and the preferred stock and bond, equity capital and the preferred shares / reservations of obligations.
The companies capital structure of the venture capital is influenced by several factors, such as trade in the equity, growth and stability of the sales. The trade in the equity: the use of long-term, with fixed interest rate sources of funding, together with its own funds. The adoption of negotiation in the equity may increase the yield on the capital. However, this is possible only when the return of the investment is greater than the financing cost.
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