Financing New Entrepreneurial Ventures

By Paul Andrew Bourne


Introduction (Excerpt)



Venture Capital is an investment tool that provides both equity capital and managerial assistance to emerging companies. Venture Capital is patient money. The payout can be very long term, but companies must have good prospects for rapid growth an appreciation.

Inter-American


Development Bank (IFM Bulletin)


Venture capital comes in many forms and at several stages in a business. Venture capital (VC) can be used to build companies from a business plan to a fully functioning, profitable and valuable company. Before VC money is useful, entrepreneurs must develop their own idea and technology. They need a base to accomplish this, which is usually provided by friends and family or a previously successful entrepreneurial activity (their own funds). During the heyday of the first generation Internet investments, incubators provided many of these functions in the US. Outside the U.S the lack of angel capital has forced countries to rely on the traditional government sponsored incubators as well as some private attempts at supporting startups. In today's society, the allocation and availability of capitals have been a challenge for countless small prospective and actual investors. As such, many persons are not totally aware of the institutions, the addresses and prerequisites for investment capital in order to stimulate productive within their businesses. Hence, this paper is in direct response to a "need to know" where, how, what and when are needed to ascertain venture capital.

Furthermore, before entrepreneurs can even think of new ideas which are based on new technologies, there needs to be a baseline, a set of conditions available in a given market or region which together create an opportunity to create new value. An entrepreneur is not about getting rich, although some have recently thought this was the endgame; it is about creating value from an idea. An entrepreneur needs to believe in an idea, believe that this idea can fundamentally (not incrementally) change the way a given service is delivered or a product is developed. It is this drive to bring ideas to life and translate them into value recognized by third parties that is the ultimate satisfaction for an entrepreneur.

Entrepreneurs rely on angel investors or high net worth individuals or members of a particular diaspora to finance the earliest stages of a company's development. During this stage, the entrepreneur is developing their technology and business model and ensuring that the company idea or concept actually has the element of being a real business. While some venture capitalists will specialize in this seed stage in emerging nations, it is usually accomplished through the diaspora network or through government or university incubation.