Venture Capital is one form of acquiring funding for business. The difference between venture capital and traditional funding is that venture capital is equity based meaning capital is exchanged for part ownership of the company. Where as in traditional funding such as loans, are debt financing and must be paid back, however in debt financing there is not loss in partial ownership.
Venture Capital is often considered by entrepreneurs who are unable to acquire funding from more traditional sources because of the company’s size, stage of development or assets. Venture capital funding typical focuses on young and high growth companies, they invest equity capital rather than debt, and it has a longer investment horizon than traditional funding. One of the major factors of business success and long-term growth depends on the availability of funding and because of this lenders require some sort of security before they invest in a small business. If a company is just starting out and does not offer a guaranteed success or financial growth, lenders less likely are to invest in that company. When lenders invest their money into a company they want to make sure they get the return on investment which makes it more difficult for new businesses to acquire venture capital. As the Venture capital is most likely to be given to an established company with an already proven track record.