The Role of Venture Capital in a Business Start-Up
The most obvious hurdle to getting a new business off the ground is simply finding the money required to turn your vision into a reality. Start-up funds can come from any number of sources, including personal savings or acquiring additional mortgages on one’s home, using the revenue generated from a simple business such as a retail establishment to help expand operations (known as “bootstrapping”), and bank loans.
However, unless you happen to be fairly well-off already, any of these methods can be either difficult to make happen or exceptionally risky. One alternative you might investigate is venture capital, or money obtained from groups that invest cash in your business in exchange for shares that will be liquidated when the business goes public. These venture capitalist (or VC) pools can offer significant amounts of start-up revenue if they believe the business has major potential to develop. Solid venture capital companies can also offer smaller entrepreneurs a network of contacts through which their business might grow.
Perhaps the biggest part of venture capital negotiations revolves around how much the funding group should receive in percentages when the company begins to sell its shares or is acquired by a larger corporation. This number can range from 10 to 50 percent depending on how well the VC group thinks the business will do, although greater and smaller amounts are not unheard of.
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For more information on how venture capital can help turn your small business idea into a reality, contact Texas Legal Entities at 512-472-2431.
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