Venture Capital

  • Created by: Strawbs
  • Created on: 02-02-23 10:05

Venture Capital

What is Venture Capital?

Private equity financing from speacialist organisations or wealthy indiviuals who are prepared to lend risk captal to, or purchase shares in, business start ups or small/medium sized businesses that find it difficult to raise captial from other sorces. They are often deemed to have high growht potential or have demonstrated high growth. 

The lendors expect a share of the future profits, or a zieable stake in the businesess in return

Why is it needed?

It is often cuased by the nature of the business being risky. For exmaple, a risk could be new technology that the company is dealing with or the risk from complect research it is panning. (Not all providers are prepare to take the risk and get involved). 

Is it worth it?

Although it is risky and expansive, the rewards can be great. In fact, the value of Apple and other high-tech businesses has grown rapidly, many of which were financed by enture capital. 

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Venture Capital


  • Long Term 
  • External 

What Factors Would Affect The Choice of Venture Capital As A Source Of Finance?

  • Reliable, solid team - with a strong core team investors are likely to bet on your company. They think your team is capable of putting in the efforts required; do something useful with the money.
  • Market Oppotunity - if there isnt a gap in the market for a company, it is less likely to be a success so why sould you invest in a business that doesnt have good customer potential?
  • Sufficeince technology - this is so that the business already has the fundementals, and the money can be used purely to improve the business stratergy. 
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Taking On Partners

What does it mean?

As each of the partners contribute more capital, there is more finance avaibilbe for investment. 


  • All profits are shared 
  • The partners have unlimited liabitlites

(An long-term, external source of finance)

Factors Influencing This Finance Choise:

  • Form of business ownership and desire to retain controle
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Business Mortgages

What are business mortgages? 

  • Business mortgages are when banks or other financial institutions offer loans to a business 
  • These loans are specifically for buying premises  
  • The interest rate may be fixed or variable 
  • The loan will be secured by the property as the lender will sell the property if the business fails 
  • This is a long-term, external finance 


  • Often works out to be less money than renting premises 
  • Don’t need to have significant amounts of capital 
  • You know exactly what your monthly payments will be as you don’t need to worry about rent rises etc. 
  • The property you purchase will be a business asset that has the potential to increase in value 
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Business Mortgages


  • May need to put a deposit down 
  • If the interest rates are variable, then monthly costs may change 
  • Your capital could take a hit if the value of the property declines 


What type of business is this suitable for and What factors would affect the choice? 

  • Businesses who want/need their won premises 
  • They must have a good credit rating 
  • If you haven’t been trading for long, lenders may see this as a sign of high-risk and request personal guarantees 
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