What is Venture Capital? Definition, Benefits, How It Works

May 28, 2023
venture capital definition

When starting a company, there will be a possibility where you need additional fund. The most common source of this fund is coming from bank loan where a company would have to fulfill particular terms and condition to receive the fund. However, there is another way to obtain this kind of investment from venture capitals, or modal ventura in Bahasa Indonesia, with different extent of benefits.

Read also: The Differences Between Unicorn, Decacorn, and Hectocorn

What is a venture capital?

So, what is the definition of venture capital? A venture capital firm focuses on funding private sector by lending out a certain amount of money in exchange of equity or shares. The difference between a bankloan and venture capital is the involvement in the business activity.

While a bankonly loansmoney and expects you to pay back with interest, venture capital would be involved in making the decision for the company. This is whymany venture companies focus on a particular field of business. Still, the investment model of this venture capitals, or modal ventura in Bahasa Indonesia, has its benefits and disadvantages.

Also read: Best Venture Capital in the World

The benefits of venture capital

venture capital definition and meaning

venture capital definition

After knowing what a venture capital meaning are, here are some of the benefits:

  • – The investment runs on a specific range of time.
  • – It has high flexibility on the repayment system.
  • – Benefitting the startup with a limitedsource of capital.
  • – The venture capital firm’s involvement helps the startup to establish a professional management ecosystem.
  • – It has a full concern on the development of the business.
  • – The establishedstartup would then gain more trust from the public, the privatesector, and bank.
  • – It gives a bigger chance for a startupto expand its business and create a new

Read also: 5 Main Role of Venture Capital on Startup Business

The disadvantages

  • – Some models offer a largeramount of repayment and profit for the venture capital than for the startup.
  • – A startupneeds to have a well-formulated business design, ideas, and prospect before the venturing company can join.
  • – The increasing amount of investment may result in loss of control for the startup founders.

In other words, it is not that easy to gain investment from a venture capital company. Excellent network and business model should be offered so that the investors are interested in pouring their money into the business.

Also read: 6 Characteristics of Venture Capital You Need to Know

What should a startup do to gain trust?

Surprisingly, the startups that have been funded by various venture companies like Alpha JWC Ventures, Sequoia Capital, East Ventures, and 500 Startups, show a positive rise inthe business. Nearly more than 80% of the companies funded survive and become the leaders on their field.

While trust is the most important aspect of obtaining investment from a venture company, you may want to pay attention to these tips:

· Have A Convincing Business Plan

A strong business plan may consist of an effective business concept and ideas, a comprehensive vision of the business model, and a prospective gain of profit in the future.

Read also: Early Startup Funding Stages: Explained From Seed to IPO

· Upgrade Your Network

The venturing company would not look for small companies to fund. They need reliable recommendation before they can review your business model. To have it, you may want to expand your network by attending startup events and conferences. The more active you are in creating links, the more trust you can gain.

· Build A Solid Teamwork

A starting company would not last long without solidteamwork. Look for partners that have the same vision for the company. Strong communication is also important to build so that every problem within the company can be solved.

Read also: Top 24 Venture Capitals & Angel Investors in Singapore

· Pick the Venture Companies Carefully

Though it can be concluded that the startup needs more of the capital from the venturing company, it is possible for the startup to refuse the partnership. It is important to understand that not all venture capital firms are registered by the Indonesian Financial Service Authorization (Otorisasi Jasa Keuangan/OJK).

To be safe, you may want to check the list before you establish a partnership with venture capitals, or modal ventura in Bahasa Indonesia. Partnering with registered venture capital company would give more safety for your startup.

Modal Ventura is a series wherewe talk about the basics of venture capitals.

You can also read our article about How to Get Investment from Venture Capital?