What is venture capital?

The notion VENTURE CAPITAL covers:

• financial means invested by a financial partner into the equity capital of an unlisted company,
• it is used to finance the launch of company activities, their development or expansion, when the venture investor acquires an agreed equity interest against the provision of a certain volume of financial capital,
• for start-ups, it means a common set up of an enterprise with a financial contribution by a venture investor into the equity of the start-up company.
  

Venture capital is a share capital provided by a professional investor to new or existing enterprises that exhibit above-average growth rates. It is used to start the company up, develop its business activities or to transform the ownership. 

INVESTMENT, INVESTORS

INVESTMENT – is not a one-time provision of financial facilities but rather a several years´ lasting process of “co-existence” of the enterprise with the venture capital investor.

INVESTORS:

1. business angels  
- do not invest only venture capital but also own experience,
- actively take part in the managing process of a company.

2. companies and venture capital funds

• usually institutional investors (banks, insurance companies, pension funds), private investors, international institutions or other public funds,
• do not participate in the operative issues of the company,
  
• take part in the decision-making process in strategic issues (right to veto),
  
• active in financial management of a company (controlling, reporting).
  

VENTURE CAPITAL is provided in different investment stages: 

START-UP

- seed capital (pre-start, initial financing) - completion of research, development and verification of an initial concept and a plan before the company gets into a start-up stage,

- start-up capital (starting financing) – funding provided to companies for development and completion of production of a product or services and for the initial marketing. Enterprises can be in the set-up stage (new companies) or have already been established but have not started yet to sell their products or services regularly on a commercial basis. 

DEVELOPMENT OF ACTIVITIES

- other early stage (financing of an early development) – the company has finished the stage of the product or service development and requires further financial means to start the commercial production in order to reach first revenues. The company does not have to be profitable yet. 

- development, expansion (development financing) – investment is provided with the aim to enable existing company to grow and develop regardless of the fact whether it has already reached the breaking point or not; it is used to expand the production capacities, development of market potential, further development of a product or service, eventually augmentation of working capital.

PRIVATE EQUITY investment stages:

1. rescue of a company - restructuring capital
   
2. change in the ownership of a company – management buy – in, management buy-out
3. debt replacement capital
4. acquisition capital 
   
   

INVESTMENT PROCESS

1. initial assessment process 
   
2. investment audit
   
3. detailed investment analysis (due diligence)
   
4. negotiations about the investment provision conditions
   
5. approval
   
6. contract drawing
   
7. provision of funds
   
8. investment monitoring
   

EXIT OF INVESTMENT FROM A COMPANY

• sale of shares back to the original owner,
  
• sale of a company to a business partner,
  
• sale of a company to a strategic investor,
  
• initial public offering (IPO).
  

VENTURE CAPITAL IN SLOVAKIA – amount of investment

For more information on the venture capital, please consult the following web pages: