Private equity investors and venture capitalists are in the same investing category. They provide money and guidance to new businesses for the returns associated with equity. But venture capitalists back new projects hoping to receive a signficant profit down the road, while private equity funding businesses prefer to invest in more established businesses that has the possibility of a clear exit strategy. Equity funding firms don't make as many investments and plan on maximizing profits by selling the company or going public within in less than ten years. Company owners often get more money and deal with less red tape if they take the private equity route rather than going public.
You need to know about the two major categories of business funding. The categories are equity funding and debt funding. Pros and cons can be found for each of these options; making it simpler to find the investor that is suitable for your business in the best ways.
Debt funding refers to money that is borrowed and has to be repaid over a period of time with interest. Debt funding can be either short term or long term. Short-term debt funding requires the loan to be repaid within a year. Long-term debt funding involves repayments for more than twelve months. With debt funding your only responsibility to your lender is to pay back your loan. Debt funding comes from resources like banks and traditional lenders. With debt funding you will have to make repayments every month, which will include interest.
Equity funding exchanges a share of the business for cash funds. This permits you to get funds for your venture without going into debt. The sale of equity means taking on investors. Plenty of small-scale businesses raise equity by bringing in investors to make their business increase and get a profit on their investment.
The principal advantages of equity funding are that you do not have to pay back your investors even if your company goes bankrupt. You don't have to pledge your business resources to get equity. A business with adequate equity will seem better to lenders, investors, and similar. Because you do not have to make debt repayments your business will have more cash on hand.
The main disadvantage is that you will you will not own your company outright or receive all the profits: you will have to share these with the investors. You may not have the final 'say' in how your business is run. The tax departments in most countries don't consider payments to investors as being tax deductible.
If you have a great idea for a business and need vc funding for it, there's a willing venture capitalist waiting out there to help you start you off down the track. Venture funding is straightforward to find if your business is set to grow.
