A venture capital investment is a way to provide large-scale funding for high-potential, growth companies. In this type of investment, a venture capitalist provides funding for a new business venture in exchange for equity in the company. The venture capitalist will get a return on his investment either by the sale of the company or by selling shares to the public. Venture capital is also made in a company that is already on its feet but need cash for expansion.

Both the investor and the business owner benefit from a venture capital investment. Venture capital investment is attractive for startup companies with limited operating history that are unable to raise operating funds in the public markets and cannot obtain a bank loan. In exchange for infusing cash into smaller and new companies, these investors usually gain a lot of control in the operation of the company, and also get a significant percentage of the company’s ownership. Investors usually have at least one member of the company’s board of directors.

It is important to make it clear right from the beginning, how the business relationship between the venture capitalist and the company will function. Taking the time to outline each step of the deal in advance will make things run smoothly. When everything is clearly defined and both parties know what is expected, the arrangement between the two becomes mutually beneficial, and very profitable.

This financing source can be of great help for any entrepreneur looking to put a business idea into action or expand an already existing company. However, it is important to know the proper way to approach them.

Venture capitalists are motivated by profits. They don’t just give away money to any entrepreneur that needs it. An investor who infuses cash in a company is looking to make a healthy return. A sound business plan and the potential of significant returns on investment are usually key components in the decision of a venture capitalist to provide funding for a business start-up. The venture capital firm wants to be convinced that the business has the potential to be highly lucrative over time. So in order to attract venture capital investment, a business owner must present an informative and captivating business plan that outlline his strategies for making the business successful and profitable.

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Interested in early-stage company investment? Duke alumni Mitch Mumma ’81 of Intersouth Partners speaks about the basics of venture capital.