Venture Capital – An alternative for small and medium entrepreneurs

Studies of the Spanish economy have been interested in the problems that some small and medium-sized companies have. Problems of various kinds, fiscal, financial, administrative, etc. These companies make up about 95% of all companies in the country and generate 60% of jobs, 65% of sales and produce 40% of the goods that are exported.

Although small and medium-sized companies are not listed on the stock exchanges, which deprives them of the opportunity to be financed by individuals and, of course, they are less competitive compared to other companies that are listed on those lists. They have fewer financing options and can only rely on themselves for profit to stay afloat. They depend on the property and assets that the owner can use to finance the business or use as collateral when applying for a short-term or long-term loan from a financial institution. It is in this context that we introduce the concept of venture capital.

We can talk about three major problems that small and medium-sized companies have when undertaking and that hinder their financial development. It’s a dependency cycle if you will. It is difficult for small businesses to obtain a loan from a bank, and because the bank does not trust their ability to pay, it sets high interest rates for them, which puts them at a disadvantage against their competitors. For all these reasons, they cannot offer prices as competitive as other businesses. Again, the only option for them is a financing structure like venture capital.

Venture capital is a way of capitalizing small and medium-sized companies, so its development is vital for the regeneration of the country’s industrial fabric.

Venture capital financing is an instrument aimed mainly at small and medium-sized companies, through which a company specialized in investing or not (investment company) injects capital in a small or medium-sized company (recipient company) on a minority basis and in a relatively short space of time.

If you prefer, we can understand venture capital as a financial formula that provides resources to companies, mainly small and medium-sized, in the form of long-term permanent funds or with the same risk as the funds contributed by the entrepreneur since they normally do not have warranty. or special benefit. It is important to find the right balance between the percentage of ownership and control of the company and the participation in the use of the different financial instruments.