Venture capital as a possibility of financing innovations
Journal Title: Central European Review of Economics and Finance - Year 2014, Vol 4, Issue 1
Abstract
Innovative business venture by its nature is a risky area to allocate capital in. For many subjects interested in implementing innovations it is hardly possible to be provided with money from typical sources. Receiving capital from the stock exchange is possible only for big companies that are firmly grounded in the market. They are able to overcome the stock exchange entry barriers. Banks are embedded with means of precaution which make it more difficult to receive bank loans for projects of high or inestimable risk. It is not a rule, however, innovations are a domain of small and medium enterprises. They are not completely hopeless in the financial market. Innovative products directed towards these market participants whose needs are not fulfilled by traditional financial instruments also appear. Forfaiting, factoring, leasing, franchising venture capital are only some of possibilities which are accessible for innovative business ventures in the capital market. Venture capital funds are close-ended funds, they were developed mainly in the United States as a non-standard source of financing risky business ventures operating most frequently in the area of high technologies. Beneficiaries of such a capital are entrepreneurs who have an innovative product, method of production or a service. Benefiting from venture capital is connected to investments in, above all, new developmental enterprises. When we take under consideration the fact that venture capital is also connected with support in the area of management it also can be called "financial-advisory capital". There are both advantages and disadvantages of benefiting from venture capital. In the reference books this form of financing is frequently presented as a great secure form of receiving capital. Entrepreneurs are encouraged to take advantage of the offer provided by venture capital funds. Doubtlessly it can be good and sometimes the only solution when we have an idea but no money. However, we should remember that investors who provide us with financial resources in the form of venture capital - these business angels - are also business people aiming to receive profit. Resources received from the funds work mainly for the funds not for the entrepreneur. What is more, it is short-term or middle term capital which is usually withdrawn in the peak of the growth of the company's value.
Authors and Affiliations
Grażyna Olszewska
Keywords
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