Startup Funding: Getting Cash

In the first quarter of 2006, VCs invested $5.6 billion, taking part in 761 deals, according to The Money Tree report by Price Waterhouse, Coopers.

Venture capital could come from both individuals and corporations set up for the purpose of investing. In addition, the individual or entity could be a general or specialist investor.

"The common denominator in all these types of venture investing is that the venture capitalist is not a passive investor, but has an active and vested interest in guiding, leading and growing the companies they have invested in," states the site of the National Venture Capitalist Association.

Along with a capital injection, the advantages of a VC investment include an objective focus for the company’s direction. A VC can also have strong, extensive contacts across the industry, thereby facilitating business growth.

However by taking a large stake in ownership, VCs can gain the power to make managerial changes. With a stake in the company, personalities could clash and a powerful but unsatisfied VC with a voice in the boardroom could even lead a shareholders’ charge to replace those running the company.

Attracting Venture Capital – How?

Among the factors which make a difference in attracting the VCs attention are cash flow, a strong management team, and the willingness of the founders to cede control in exchange for cash, experience and knowhow.

Amazon.com, currently the Internet's largest retailer, was able to survive in the marketplace because of cashflow even after accruing a deficit which reached $2.86 billion in 2001, just over 4 years after the company had been founded.

The key to remaining in business was that the firm had a consistent stream of cash coming in and marketable securities, which it was able to use to pay creditors and other expenses even though losses were accumulating.

Since the late 90s and and the early part of this decade, VCs have focused much of their attention, and dollars on the Internet and Silicon Valley.