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Every day we read about companies that have raised millions of dollars of capital to finance growth and business expansion. The reality of increasing such funds is much more complex than the newspapers do not.

There are many different sources of capital – leverage depends on many factors. Also requires careful planning, the right advice and the right tone. Whether or not you get also depends on what type of business you have, what stage is what is in the industry, profitability is how much experience you have and how the overall market is up.

What is venture capital?

The term venture capital means capital provided to finance a business. Essentially venture capital and private equity means the same. However, there is a difference between venture capital and private equity firms. Venture capital firms typically seen in the emerging business and industries and may participate at an earlier stage. Private equity firms generally as more traditional industries, and tend to prefer mature companies with steady cash flows.

What is a Business Angel?

"Angel investors" are people who want to get involved in the seed or starting the stage of a business. Looking for high growth companies that also have synergy with their own business skills, or network. The investment can be as little as $ 10,000 and up to $ 500,000 initially. Follow on rounds may be an option. The Angel normally be getting their hands dirty, taking a small role, is on the board, or act as a business mentor.

What is a liquidity event?

This is the event that gives the investor their money. This is more common commercial sale or a public float. However, sometimes an investor may get bought by another investor or by the original owner.

Types of capital available …

Below are some commonly used terms to describe the various stages of funding: —

Seed – This is the beginning of the life of a company, often before the profits or sales are achieved. It is sometimes used to finance training company and its required components in order to get off the ground.

Start-up – This is when the company went public, but is still in its childhood. The start-up business is usually only six months or a year old.

Expansion – The company has sales and an established market in a particular segment or location (like Sydney) and now require funding for their operations can extend beyond. Sometimes, the company is growing very rapidly and should be expanded to meet market demand.

Acquisition – The company is seeking to expand purchase of other businesses, which are similar or synergistic in nature. The company can not have the funds to do this, which is where the funding comes into play in acquisition

MBO / MBI – This is the Management Buy Out or Management Buy In. This means exactly that. These are funds lent usually by a private equity firm or a bank institutions that allow existing management (MBO) or management (MBI) to buy out existing owners.

Pre-IPO – The funding round that precedes an initial public offering, usually between two months to two years. Funds are sought in order to finance an acquisition, expansion or pay for the list. These deals are usually only available to professional investors, institutional investors or high net worth individuals as the amounts involved tend to be in the millions or tens of millions.

OPI – This means that the initial public offering and is when a company goes public in an exchange like the ASX. This is done through a paper prospectus and allow "mom type and dad 'investors to invest alongside the founders, major shareholders, professional investors and institutional investors. This is the most common way to collect large sums of money, like $ 50 million or 100 million dollars.

© Len McDowall, Integral Capital Group August 28, 2007
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About the Author:

Len McDowall was previously inaugural Chairman and Managing Partner of Bird Cameron, Chartered Accountants, (now known as RMS Bird Cameron) which employed 1000 people in 50 offices in Australia and Hong Kong. Len McDowall who established Bird Cameron’s mergers and acquisitions division, has extensive experience in all facets of financial management with a particular emphasis on structuring and negotiating joint ventures and capital raisings.

Following his retirement from the accounting profession Len McDowall and his partners established the Integral Capital Group which specialises in mergers and acquisitions, public floatation’s and capital raisings.

Article Source: ArticlesBase.com – Understanding Venture Capital by Investment Guru, Len Mcdowall

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