Scottish
Enterprise Venture Capital
Scottish Enterprise Venture
Businesses
with a strong growth potential – either a start-up, an
existing business, or one being bought – can acquire
substantial levels of funding through venture capital.
Usually,
a venture capitalist acquires an agreed share - or equity
- in the business, in return for providing funding. The British
Venture Capital Association provides a list of venture capital
investors.
However,
unlike bank debt, venture capital money is not secured. Venture
capitalists hope to share in the success of the business at
some future date, probably by selling their investment or
by floating it on the stock market. Most of the investor's
return comes from the capital made at this '"exit"
stage, likely to be around seven years after the initial investment.
Scottish
Enterprise is trying to encourage more venture capitalists
to invest in new businesses with growth potential. More about
the new Scottish Co-investment Fund is on their website.
Scottish Enterprise - Answers to some key questions
1)
Should I go for venture capital?
Only
if you're after a lot of equity finance. The economics of
venture capital mean deals only pay when they are relatively
big, usually over £300,000 and deals are only struck
when the business shows big earning potential. Plus, most
venture capital funds avoid start ups so only go for it if
you think you've got a good chance of getting it.
2)
What are the advantages?
For
a business with a substantial up front investment requirement,
equity capital is by far the most attractive source of finance.
As professional investors, venture capitalists bring a lot
of useful financial and management expertise and their involvement
will make it easier to attract other funders, secure trade
and make contacts.
3)
What are the disadvantages?
The
biggest disadvantage is the difficulty and cost of securing
venture capital, particularly at start-up stage. In addition
to the cost of an extensive business plan, once the deal is
under negotiation, there are legal and accounting fees to
pay. Venture capitalists are also likely to have rigorous
investment targets, which they will expect you to satisfy
and which may not match your own plans for the business. Worse,
if things start to go wrong venture capitalists will intervene
to protect their investments.
For
further information on Scottish Enterprise Venture Capital
visit the Scottish Enterprise website.
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