Investment capital plays a major role in the economy. It represents a fundamental support for the unlisted companies throughout its existence. It contributes directly to business creation, promotion of innovation of new technologies, growth, employment and renewal of the economic fabric.
Let us now try to explain the purpose of investment capital. Investment capital is given by capitalist for the funding of small businesses that they perceive as promising or innovative. Their contribution is given through the purchase of shares from small companies that are generally not listed.
Therefore, investment capital can be used to fund small or medium sized companies in their first stages, it may enable them to grow faster, or help them survive when they are in trouble.
For that reason, there are four forms of investment capital: Risk or Venture capital, Growth Capital, Distressed investments, and Capital Transmission or Leveraged buyouts.
How does it really work? How does investment capital help small companies? We can say that investment capital gives financing that contributes to growth and development of businesses. The expertise of capital investors helps business increase their strategic thinking process. Additionally, when a company has more working capital it can afford to increase its added value, customer care and relations with suppliers and employees.
When does Investment capital intervene in the operations of the company?
When an investor buys its participation into the company there is a high chance that he or she will intervene in the operations of the company. Venture capital is used in order to finance innovative and creative new businesses. Growth capital comes later in the development process of the company and their contribution may be different. Leveraged buyouts allow the company to use funds for acquisitions, and transfers. Distressed investments help companies that are facing tough times and may risk closure.
What is then the contribution of investment capital to life of a business? When a small company cannot get credit from a financial institution or may do so but paying high interests, investment capital becomes the most attractive option. However it can only be given to those that have promising futures. In that sense, a company will get expertise, strategic support, and improved performance.
Investment capital also allows the company to prepare itself for internal or external growth in the medium and long term. It allows companies to intelligently steer funds from financial institutions to businesses.
Tags: development financing, Finance, international financing, project financing, project funding, project investment, venture capital, venture capital firm, venture capital firms, venture capital funds