Capital is one of the basic inputs required to establish and run a business. Capital investment funding is needed by the enterprises for their fixed expenditures as well as expenses of the daily requirements which vary from day to day. Capital investment funding is required in the niche stage of the enterprise even before the revenues begin to generate out of the business.
Venture capital investors are the primary source of receiving the large investments required by the start up enterprise in the seed phase of the business. The capital investment funding for the established businesses for expansion is also made available by the venture capital investors. The venture capital investors provide the Capital investment funding for the start up and small and medium enterprises and seeks huge returns on investment as the reward.
There are several advantages of receiving the capital investment funding from the venture capital investors due to which this is the first choice of the enterprises seeking capital investment funding. Capital investment funding received from the venture capital investor is free from the burden of repaying the interest on the principal capital fund received. Other sources of capital investment funding ask for huge rate of interest to be paid on the principal capital. In such cases the enterprise is bound to repay the principal amount within a predetermined period to avoid the legal implications. This burden of repaying the principal amount received in the capital investment funding; within a stipulated time may hinder the growth of the enterprise.
In receiving the capital investment funding from the venture capital investors there is no condition of repaying the principal amount received. Instead the investor receives the ownership of the part of the company and earns huge returns on investment if the company grows to new heights. This is how the need to repay the principal amount is substituted reducing the burden on the enterprise receiving the capital investment funding.
Businesses popularly receiving the Capital investment funding:
There are some businesses which are the personal favorites of the investors and relatively easily receive the capital investment funding such as the biotechnology, mobile internet, 3G technology, pro-environment technologies, information and communication. In these industries if the business takes off well then the investor can earn heaps of profits on the capital investment funding. The investor does not need to wait too long for reaping the high returns on investment (ROI), the returns are fast and if the investor wishes can leave the company by selling his shares or the stake at high profits. Some venture capital investors intending to make huge capital investment funding have the qualified team of professionals to identify the potential of the technology at the very initial stage and suggest to the investor about the profitable investment industry and provide the capital investment funding to the same promising industry. The team of qualified professionals working with the investors makes the things easy for both the parties; those seeking for the funding and those seeking to make capital investment funding in a profitable venture.
The capital investment funding is always associated with high risks. There are chances that before the technology for which the investor has provided the capital investment funding is launched in the market; some superior technology gets launched devastating the business prospects for the inferior technology. In such situations the investor may have to bear big loss on capital investment funding. There is always a risk factor with the capital investment funding in start ups as the investor provides capital on the basis of the potential of the enterprise to do successful business without any past record for reference. If such start up enterprise fails to succeed in the business the investor has to bear huge loss on the capital investment funding provided for that business.
To avoid such huge losses many angel investors join together and pool the capital for capital investment funding in a start up. In this way the ideas, experience, knowledge and creativity of many investors works together which minimizes the chances of incurring any loss on the capital investment funding and if any loss is incurred that gets divided in the group, reducing the burden on each investor.