Financing a startup thanks to Venture Capitalists

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Financing a startup thanks to Venture Capitalists

Financing a startup thanks to Venture Capitalists

In the article “How to finance a startup?” we talked about how startups, especially in the initial stages, have to face countless expenses and indicate in the business plan all the ways in which they will be financed.

Among the main subjects that invest in innovative startup projects and/or primary sources of financing (“Business Angels“, “crowdfunding“, certified incubators and accelerators, public incentives, etc.), “Venture Capitalist” certainly play a leading role.

Who are the “Venture Capitalists”?

Venture Capitalists (VCs) are investors (companies, investment funds, etc.) who make their risk capital (venture capital, in fact) available to finance the initial phase or growth of innovative start-ups or businesses who do not have access to the stock market, in exchange – generally – for a significant stake/share in the company or for a significant position on the Board of Directors.

Compared to Business Angels, VCs tend to invest in the start-up after it has passed the initial phase, usually (but not always) coming into play following the validation of the product/service.

Furthermore, compared to Business Angels (but also certified incubators), the investment by VCs in venture capital in startups takes place almost exclusively through recognizable and defined legal structures, usually the Asset Management Companies (SGR).

Who are the main Venture Capitalists?

Among the main subjects who assume the role of Venture Capitalist we find:

  • Closed-endfunds, ie investment funds generally promoted by an SGR, with the aim of raising capital from institutional or private investors, to finance startups or unlisted companies.

Each fund is “closed”, as the raising of capital takes place within a specific term (beyond which it is not possible to accept new requests) and the subscribers can redeem the shares only after a set deadline.

  • Banking institutions, which acquire minority stakes in startups (or unlisted companies), with the possibility of diversifying investments in the private equity market, as long as the ratio between risk and return is not too high and is always kept under control.

Unlike the other VCs, the disinvestment of the acquired stake must not take place at a predetermined deadline, but only when the conditions are favorable.

  • Public operators, whose purpose is to provide aid to industrial sectors and/or geographical areas of the country in difficulty, as well as to promote employment and economic development.

However, due to bureaucratic and political constraints, they do not have sufficient decision-making autonomy to be able to follow an effective support strategy. For this reason, the practice followed by these operators is to invest in a complementary way with respect to private VCs, which they often ask to co-invest in the same startups or small businesses.

Among the various public funds, we find the National Fund for Innovation (FNI), through which the Ministry of Economic Development (MISE), allocating 200 million euros, aims to incentivize investments in the capital of start-ups and SMEs. innovative by qualified subjects.

Should you rely on a Venture Capitalist?

For the start-up, the investment by Venture Capitalists – and their presence on the Board of Directors – is (potentially) an important driver for economic and commercial growth.

The advantages

The advantages for the start-up, in fact, are considerable: introduction of new capital; support in managerial, fiscal and management fields; network expansion; attracting new investors; advertising and brand development, etc.

Venture Capitalists, in fact, help the startup to consolidate its presence on the market, contributing to the construction of a reputation and solid credibility and increase the network of investors or other financial operators, thanks to their extensive network of contacts.

Without forgetting the contribution made to the internal development (joint ventures, acquisitions, mergers or other solutions useful for achieving the objectives) or to the equity/corporate structure (in order to facilitate the eventual liquidation of partners no longer interested in the project) of the startup.

The disadvantages

The disadvantages, however, are often proportionate to the investment: generally Venture Capitalists obtain an important role in the Board of Directors and this almost always determines the subtraction of decision-making power from the founders/managers of the start-up and a decisive change of strategy from part of the VC.

For Venture Capitalists, therefore, the investment is highly risky – given the probability of failure of start-ups – but any success obtained by the company generates an exceptional economic return in the medium to long term.

For this reason, a solid innovative project, with considerable probability of success – often already “validated” by the market – encourages Venture Capitalists to invest in the capital of the start-up and to support it in the growth process.

The importance of legal and tax support

How to choose if and when to rely on the support of Venture Capitalists?

Our advice, especially in the early stages, is to rely on serious, qualified professionals with proven experience in business consultancy, who will guide you with confidence in choosing the safest and most profitable financing methods for your business strategy. .

Our Law Firm, thanks to the expertise and experience in consulting and assistance to start-ups, both in the legal and commercial and corporate fields:

  • provides all entrepreneurs interested in obtaining financing for their start-up with specific advice and assistance regarding the choice to rely on a VC;
  • assists its clients in finding the economic resources necessary to finance the start-up and those willing to invest in their projects;
  • supports the company at every stage of development, recommending the best commercial and legal strategies to be implemented.

Contact us immediately at the numbers +39 0683521985 or +39 3711453121, or write to us at info@studiolegalecoscia.it for specific advice.

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