Basic Information About Vc Funding


VC funding
repress fnancal nvestm n a hghly rsky proposton n
hope of earnng a hgh rate of return. Vure captal has an mportant role n
fnancng of up and early busnesses, as well as busnesses n turn around
stuatons. man sources of VC fundng for a company consst of equity capital,
preference captal, and debure captal and t .

Equity capital means ownershp captal n whch equal shareholders collectvely
own company, enjoyng rewards and at same tme facng multple rsks
of ownershp. However r lablty s lmted to r captal contrbutons.
n VC fundng, equty captal funds are pan funds and re s no lablty
for repaym. t smply enhances edtworthness of company. n general,
r equty base n a
VC funding
, hgher ablty of company
to obtan edt. Thus may consder VC fundng as lfeblood of a -up
company.

n VC funding preference captal s just a hybrd form of fnancng because t has
some characterstcs of equty captal and some attrbutes of debure
captal. t resembles equty n way that preference dvded s payable only
out of dstrbutable profts and s an oblgatory paym and s smlar to
debure captal n that dvdend rate on preference dvdend s usually fxed
and preference stockholders do normally enjoy rght to vote. When usng
preference captal funds n VC funding re s no legal oblgaton to pay preference
dvdend and re s no redempton lablty n case of perpetual preference
shares.

Debenture capital s also a part of VC fundng and t s smlar to promssory es
because y are nstrums for rasng long-t debt captal. holders of
debure captal are edtors of company. oblgaton of company
towards ts debure holders n a company wth VC fundng, s smlar to that of
a borrower who promses to pay nterest and captal at specfed tmes. Contrary
to preference or equty captal specfc cost of debt captal s much lower
because nterest on debures s tax-deductble. Debure fnancng n a VC
fundng does result n dluton of control snce debure holders are tled
to vote. downsde for
entrepreneurs
s that captalsts wth VC fundng
usually get a say n company decsons, n addton to a porton of equty.
That s why vure captal s sutable for repreneurs.

T , also known as t fnance n a VC funding are n general a source of
debt fnance that s generally repayable n more than one year but less than ten.
y are employed to fnance acquston of fxed assets and workng captal margn.
Most vure captal funds have a fxed lfe of ten years wth possblty of
a few years of extensons to allow for prvate companes stll seekng lqudty.
nvestng cycle of VC funding for most funds s generally three to fve years,
after whch focus s managng and makng follow-on nvestms n an exstng
portfolo.

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