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How new and growing businesses can use venture capital

New York City is home to a number of venture capital firms, and every year, they provide financing that allows entrepreneurs with innovative ideas to start or grow their businesses. This financing would usually be considered too risky for more conservative lenders, and venture capital is often offered with high rates of return in mind.

Venture capital is usually provided after an idea or product has already been refined and tested, and it is not often a source of the seed money that pays for market research and product development. Venture capitalists generally take an interest in a company when it is ready to launch and entrepreneurs require additional funds to bring their idea or product to market or expand the scope of their operations.

Venture capitalists are rarely looking for a long-term commitment, and this type of financing is often offered with the hope that the company involved will rapidly grow to the point that it either goes public or is acquired by a larger firm. These investors are attracted by businesses that are run by individuals with a solid track record and operate in a market sector that is either growing at a fast pace or is expected to see explosive growth in the near future. Venture capitalists also frequently seek to protect their investment by taking an ownership position within the company.

Securing the money necessary to get a business off the ground is often a source of much frustration for entrepreneurs, but arrangements that typically call for a 30 percent or 50 percent return on investment should be approached with caution. An experienced business law attorney could offer advice regarding potential venture capital deals, and they may be able to provide ideas about alternative methods of acquiring start-up funds.

Source: Entrepreneur.com, "Everything You Need to Know About Attracting Venture Capitalists", November 25, 2014

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