Venture capitalists offer funds in return for a proportion of shares in a business. Venture capital investment is obtained from a venture capitalist firm or a business angel. The main types of investment made by business angels and venture capitalist firms are:
Ordinary shares provide the investor with ownership of a given proportion of the company. Investor’s ordinary shares have the same right as your ordinary shares. Ordinary shares are not expensive for a company to finance in the short term. The company pays out dividends if it makes a profit.
Preferences shares entitle the investor to a fixed dividend each year. They are paid before any dividend can be paid on the ordinary shares. When there is no profit to pay for the preference shares, the dividend is usually cumulative.
Debt consists of loans, overdrafts, leasing, hire purchase and other borrowings. It is secured against specific assets. Usually, we borrow from banks. However, some venture capital firms can provide hire purchase, loans, leasing as well as equity finance.