VENTURE CAPITAL

Advantages and Forms

ADVANTAGES AND DISADVANTAGES OF
VENTURE CAPITAL

Venture capital provides the funding that a

company needs to expand its business. It also offers a
number of value added services.
 ADVANTAGES

In addition to being a source of funding, an

advantage of venture capital is that a number of
value-added services are provided to companies:
 ADVANTAGES

Mentoring - Venture capitalists provide companies

with ongoing strategic, operational and financial
advice. They will typically have nominee directors
appointed to the company’s board and often become
intimately involved with the strategic direction of the
company.
 ADVANTAGES
Alliances - Venture capitalists can introduce the
company to an extensive network of strategic partners
both domestically and internationally and may also
identify potential acquisition targets for the business
and facilitate the acquisition.
 ADVANTAGES
Facilitate exit - Venture capitalists are experienced in
the process of preparing a company for an initial
public offering (IPO) of its shares onto the Australian
Stock Exchange (ASX) or overseas stock exchange
such as NASDAQ. They can also facilitate a trade
sale.
 DISADVANTAGES
Most venture capitalists seek to realise their
investment in a company in three to five years. If an
entrepreneur’s business plan contemplates a longer
timetable before providing liquidity, venture capital
may not be appropriate. Entrepreneurs should also
consider:
• Price
• Control
• Intrusion
 DISADVANTAGES
Pricing - Venture capitalists are typically more
sophisticated and may drive a harder bargain.

Intrusion - Venture capitalists are more likely to want

to influence the strategic direction of the company.

Control - Venture capitalists are more likely to be

interested in taking control of the company if the
management is unable to drive the business.
FORMS OF VENTURE CAPITAL
 FORMS
• SEED STAGE
• EXPANSION
• BUY OUT STAGE
• REPLACEMENT STAGE