Venture Capital Financing: Main Types and Structures Explained
Venture capital financing is an equity investment in a private business partner for a set period. Explore the main types, models and ownership structures.
Venture capital is an investment in the form of financing, in which an investor takes an equity stake in a private company as a business partner for a set period. In Indonesia, venture capital financing is regulated by national law. Business owners, from small to medium-sized, can grow with help from capital owners or investors. Business development plans can be carried out quickly with investor capital. Under agreed rules and approvals, business owners and capital owners can work together to advance the company. The type of financing used can vary depending on its function and how it operates. Let's look at some of the types of capital that can be applied in business.
Types of Financing
- Equity Financing is direct financing. The investor can take a share of the business partner's stock.
- Semi Equity Financing is financing through the purchase of convertible bonds issued by the business partner.
- New Company takes the form of a venture capital owner that founds a new company together with the business partner.
- Profit Sharing is financing often offered to small businesses that do not yet have legal entity status as a PT (Perseroan Terbatas, Indonesia's limited liability company). However, it is not ruled out for companies that already hold PT status.
- Single Tier Approach involves an investor that collects funds and manages the money invested as equity in the business partner.
- Two Tier Approach involves two separate business entities: a fund company (fund provider) and a management company (manager).
Types of Venture Capital Funding
There is also another approach based on how funds are raised, which classifies venture capital as:
- Leverage Venture Capital is venture capital sourced from a single capital company, with funds raised as loans from various parties.
- Equity Venture Capital is venture capital whose funds are raised as the company's own capital in various forms.
Types of Venture Capital by Ownership
By ownership, venture capital types are divided as follows:
- Private is an investment company that has not yet sold its shares on the stock exchange or gone public.
- Public, an investment company that has sold its shares on the stock exchange.
- Bank Affiliate is a company formed by a group of banks that have higher earnings or specific financing objectives.
- Conglomerate is an investment company made up of several companies.
Investment companies and business partners can help each other. Investors earn returns by putting capital into companies that need financial support to grow. The returns can take many forms and are split as agreed in the contract before the capital is disbursed. This matters a great deal to business owners, especially small and medium-sized ones, since they often struggle with the cost of expanding. With venture capital, the company's financial problems find a solution.
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