Advantages and disadvantages of venture capital?

Answer 1

The primary risk of venture capital investing is that the companies into which the capital is invested will fail, and the money will be lost. The risk of investing money as a Limited Partner into a venture capital fund is that the managers of the fund (the General Partners, or 'venture capitalists') will pick more losing companies to invest in than winning companies, and that over time the total return from the fund will be less than might have been received from alternative investments.

Answer 2

In many cases they will push for an exit without considering the future stability of the firm. In other words - they will always prefer the double or nothing approach. Hagay Levy http://www.investmentslides.com

Answer 3

Advantages:

• They can provide large sum of equity finance
• Able to bring wealth and expertise to your company
• Easier to secure future funding from other sources
• The business is not obligated to repay the money

Disadvantages:

• Lengthy and complex process (needs detailed business plan, financial projections and etc.)
• In the deal negotiation stage, you will have to pay for legal and accounting fees
• Investors become part owners of your business - founder loss of autonomy or control

Answer 4

Some advantages of venture capital are:

1) Venture Capitalists (VCs) can provide a relatively large amount of capital before a company goes public.

2) Many VCs provide managerial or technical advice for companies they invest in.

3) Successful VCs bring legitimacy to new ventures they invest in.

4) VCs may attract other investors.

Some disadvantages of venture capital are:

1) The cost of venture capital is high.

2) Venture Capitalists are not patient investors; performance must meet or exceed expectations within a specific time.

3) VCs are known to take control of under-performing companies.

Answer 5

Advantages

In addition to being a source of funding, an advantage of venture capital is that a number of value-added services are provided to companies:

Mentoring - Venture capitalists provide companies with ongoing strategic, operational and financial advice. They will typically have nominee directors appointed to the company’s board and often become intimately involved with the strategic direction of the company.

Alliances - Venture capitalists can introduce the company to an extensive network of strategic partners both domestically and internationally and may also identify potential acquisition targets for the business and facilitate the acquisition.

Facilitate exit - Venture capitalists are experienced in the process of preparing a company for an initial public offering (IPO) of its shares onto the Australian Stock Exchange (ASX) or overseas stock exchange such as NASDAQ. They can also facilitate a trade sale.

Disadvantages

Most venture capitalists seek to realise their investment in a company in three to five years. If an entrepreneur’s business plan contemplates a longer timetable before providing liquidity, venture capital may not be appropriate. Entrepreneurs should also consider:

Pricing - Venture capitalists are typically more sophisticated and may drive a harder bargain.

Intrusion - Venture capitalists are more likely to want to influence the strategic direction of the company.

Control - Venture capitalists are more likely to be interested in taking control of the company if the management is unable to drive the business.