| A budding company or one facing major financial crisis | | | | evaluation procedures to reduce risks, since their |
| can find solution to all its financial hurdles with | | | | investments are unprotected in the event of failure. |
| Venture Capital. Unlike banks, Venture Capital firms | | | | Most venture capital firms' investment interest is |
| are an important source of long-term growth capital. | | | | limited to projects proposed by companies with a |
| Venture capital firms and individuals are interested in | | | | sound operating history. Profits made by those |
| many of the same factors that influence bankers in | | | | companies aren’t given much precedence |
| their analysis of loan applications from smaller | | | | before an investment decision is made. Companies |
| companies. Though banks look at the immediate | | | | that can expand into a new product line or a new |
| future of a small company, they are most heavily | | | | market with additional funds are particularly |
| influenced by its past. Venture capitalists look at the | | | | interesting. The venture capitalists provide funds to |
| long-term future of the company. Banks are creditors | | | | enable such companies to grow in a spurt rather than |
| while venture firms are owners. They hold stock in | | | | gradually as they would on retained earnings. |
| the company, adding their invested capital to its | | | | There’re a large number of “start |
| equity base. Therefore, they examine existing or | | | | up” companies that get financial help from |
| planned products or services and the potential | | | | venture firms. Venture capitalists see that capital |
| markets for them with extreme care. They invest | | | | investment analyses and capital source studies are |
| only in firms they believe can rapidly increase sales | | | | planned 5 years ahead. The investment analyses |
| and generate substantial profits. Venture capitalists | | | | should compare rates of return for product, market, |
| look more closely at the features of the product and | | | | or process investment, while the source alternatives |
| the size of the market than do commercial banks. | | | | should compare the cost and availability of debt and |
| Venture capitalists invest in long-term capital and not | | | | equity and the expected level of retained earnings, |
| for interest income. They look for three to five times | | | | which together will support the selected investments. |
| their investment in five or seven years. The job of | | | | These analyses and source studies should be |
| the venture capitalists is to find venture projects | | | | prepared quarterly so you may anticipate the financial |
| with this appreciation potential to make up for | | | | consequences of changes in the company's strategy. |
| investments that aren't successful. | | | | But a structured financial planning doesn’t |
| It’s difficult to forecast the productivity of an | | | | guarantee that you'll be able to get capital from a |
| early stage company. Hence, these venture capitalists | | | | venture firm. Not making them, will virtually assure |
| set rigorous policies for venture proposal size, | | | | that you won't receive favorable consideration from |
| maturity of the seeking company, requirements and | | | | venture capitalists. |