The relationship between venture capitalists and corporate finance officials is of interest to everyone in any given firm. As a source of funding, venture capitalism has a somewhat sullied reputation for exploitation and asset stripping. When an organization becomes aware that there will be a venture capitalist challenge to its funding, the members of staff automatically start worrying about their jobs because they believe it is the next step.
Even the members of staff who do not believe that their jobs will be lost will still be weary of being bulldozed by the venture capitalist. It is almost like a military occupation but in purely financial terms. It is therefore interesting to look at some of the alternative sources of funding that are available to the corporate finance team.
What does Venture Capital Do ?
Venture Capital refers to funding obtained from professional investors who seek to make profits by making investments in firms, particularly failing firms in the hope of making a profit when they are sold or when their share price rises. The specialization for venture capitalism relies on looking at the type of firm, its problems if any and the stage of growth at which the firm is currently standing.
For the company seeking to obtain venture capitalistic funding resources, the managers must first consider whether they are prepared to take the risks that are associated with venture capitalism and whether they are content to hand over control to the managers from the venture capitalist sponsor.
Some people are just too proud of their business and will resist any attempt by the venture capitalists to influence or be involved in the running of their company while others will see it as an opportunity that far outweighs any risks that they may have calculated. Sometimes staff concerns over past experiences with venture capitalists can sway the decision against entering the deal.
Some of the Alternatives in Raising Capital
It is possible for the firm owners to raise capital from their own savings. This is a difficult option to take because savings are hard to acquire or accumulate and it becomes even harder to give them away to the firm. However if you really love your business and you fear the option of going with the venture capitalist then savings are an option. Obviously you will be carrying the risks but also you will be comforted by the possibility of rewards.
Private equity firms are also another source of possible funding. Public Equity Funding option operate in a slightly different manner because they usually come in when the firm is well advanced as opposed to the venture capitalists that prey on the firm at the very beginning of its life cycle. Obviously they carry similar risks to the venture capitalists but since the firm is usually quite stable by the time they come in, there is a possibility that the organization will be able to cope with some of their negative effects.
Venture capitalism is not the be all and end all of all funding options for businesses. The corporate finance department can use its imagination and skills to ensure that they are able to explore some of these alternative solutions, if only to prevent the company from making unwise investment ventures.