Venture Capital Advantages Over Bank Loans for Business
Venture capital advantages for investors and investees: larger profits, a say in management, and easier funding without collateral than a bank loan.
Using venture capital differs from borrowing capital from a bank in several ways. You can read about those differences in our earlier article. This article focuses on the advantages of the venture capital funding system. What are they? Here is the rundown.
Advantages for the investor
In a venture capital partnership, both sides come out ahead: the investor who provides the funds and the investee who receives them. For the investor, there are two kinds of advantages:
- The size of the profit
One advantage for the investing company in a venture capital partnership is the size of its profit. The profit an investor earns from venture capital is very large. The reason is that venture capital is in effect the main capital of the company being financed, so the return to the company that invests the venture capital is bound to be large.
- A say in company management
Besides large profits, a venture capital investor has a bigger advantage in how the company is managed. Under a venture capital partnership, the investing company receives authority and takes part in management.
Why? Most of the money the company uses and circulates comes from the venture capital investor. So the investor can help steer the profit and loss of its own money.
Read also: Types of Fintech Companies in Indonesia: 4 Categories
Advantages for the investee
Besides the benefits for the investor, the investee gains as well. What are they? They include the following:
- Easier to raise capital without collateral
Companies that use venture capital are usually new and still small. Even so, they have a big vision and mission, and reaching it takes a lot of money. That is why they struggle to raise capital: they are not strong enough to qualify for a large bank loan.
With venture capital, the investee can get larger funding, so it can run its business without wondering which bank to ask for money. It can carry out its marketing strategy more fully and enter the market competition more easily.
- An investor who gets involved in running the company
Another advantage is the investor's involvement in the company's management. Venture capital investors are usually well established and bring a lot of business experience. So when they step in for the shared interest, profit becomes easier to earn. This is an advantage for both the investor and the investee in venture capital.
Read also: How to Get Investment from Venture Capital
One venture capital firm in Indonesia is Alpha JWC Ventures, which has experience as an investor in several well-known startups, such as UangTeman, Kopi Kenangan, Kredivo and many more.
