Informal Arrangements : Venture Capital Funding

Published: 26/10/2022 By Hannah McCormack

Rather than going down the informal insolvency route we have been providing alternatives and next up is Venture Capital Funding.

Usually associated with Start Ups or fast growing companies venture capital is a form of private equity financing. The Venture Capitalist assume the increased risk with the company during its start-up phase, in return for a share of the profits once the company is successful, usually where more traditional funding sources are not an option. This could be in the form of a loan or share capital, or a mixture of both, the terms of this type of investment will normally be very complex and unique to each company.
 
A business that has a new or innovative product or service that needs further development is typically what a venture capital investment will be available for. Therefore it is unlikely to be available for refinancing of existing debt for established businesses or more mainstream standard activities, in other words if you have a failing business but have a great new innovative idea but don’t know how you can run with it as your current business is suffering, this is what the venture capitalist is looking for.

However, any company wanting this investment would need to have a strong business plan as well as be able to forecast success in the new venture. This could be a challenge when the company is already in a distressed financial position but there are venture capitalists that can specialise in this area.
 
As always we suggest that if you are considering entering into an agreement with a Venture Capital funder you seek advice as the terms they offer will be based on the risk they feel they are taking. The bigger the risk the less favourable the terms will be to you. Therefore, it’s imperative that you seek advice and weigh up all the options available.  

All of our informal arrangement blogs can be found on our informal arrangements webpage  or feel free to get in touch to discuss any informal options that may be available to your company, we find just speaking to us puts all of our clients minds at ease and often we can provide suggestions they may not have considered.