Venture Capital Program (Equity Financing)
SBA?s Small Business Investment Company (SBIC) Program is an investment partnership through which SBA provides venture capital to small businesses. SBICs are privately owned and managed investment funds, licensed and regulated by the SBA.
SBICs are similar to venture capital, private equity and private debt funds in terms of how they operate and their ultimate objective to generate high returns for their investors.? But, SBICs limit their investments to qualified small business.
Venture capital that for reasons of size, assets, and stage of development cannot seek capital from more traditional sources, such as public markets and banks. Venture capital is a type of equity financing that addresses the funding needs of entrepreneurial companies. Investments made in exchange for shares in the invested company.
Venture capital financing:
Aims for higher risks in exchange for potential higher returns;
Financing young, high-growth companies.
For a longer investment horizon than traditional financing;
Invests equity capital, rather than debt;
Actively monitors companies via board participation, strategic marketing, governance, and capital structure.
SBA provides venture capital through the (SBIC) Small Business Investment Company Program, a unique public-private investment partnership. SBA itself does not make direct investments. It works with SBICs that are privately owned and managed investment firms licensed by SBA to provide financing to small businesses with private capital they raise and with funds borrowed at favorable rates through SBA
What is Venture Capital?
An unsecured Financing to young, private companies with the potential for rapid growth.
Venture capital typically comes from high net worth individuals (?angel investors?) and venture capital firms and carries a high degree of risk. Venture capital is long-term investment project that allows companies the time to mature into profitable organizations.
Venture capital is an active form of financing. Investors seek to add value to the companies in which they invest in an effort to help them grow and achieve a greater return on the investment. This requires active involvement; almost all venture capitalists will, at a least, want a seat on the board of directors.
But eventually, the objective of equity investors is to achieve a superior rate of return through the eventual and timely exit strategy.
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The Process
Business Plan Submission. The venture capital reviews a business plan, talks to the business if it meets the fund?s investment criteria
Due Diligence.? Venture Capital performs due diligence, including looking at the company?s management team, market share, products and services, operating history, and financial statements.
????? Investment. After completion of due diligence if venture capital remains interested, an
? ????investment is made in the company in exchange for company?s equity and/or debt.??
????? Execution. Venture capital becomes actively involved in the company.
???? Exit. Exits are usually performed via mergers, acquisitions, and IPOs (Initial Public??
? ???Offerings).
?
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Yury Iofe, MBA
Universal Business Structured Solution
More educational resources by Yury Iofe:
www.ubssolution.com
http://www.ubssolution.com/Education.html
My name is Yury Iofe. I have over 15 years of Diversified Financial Experience. I am an MBA in Finance.
I am a Former Senior Editor with AICPA. Consulted numerous (including Fortune 1000) companies on different business issues such as: Financial Reporting, Financial Planning, Taxes, Business Financing, etc.
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