What are the advantages and disadvantages to a new or small firm of getting capital funding from a venture capital firm? What are the advantages and disadvantages to a new or small firm of getting capital funding from a venture capital firm?

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What are the advantages and disadvantages to a new or small firm of getting capital funding from a venture capital firm?

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Venture capital firms receive many unsolicited proposals of funding from new and small firms. The venture capital firms reject the majority of these requests. Venture capital firms look for two things in making their decisions to invest in a firm. The first is a high return. Venture capital firms are willing to invest in high-risk new and small firms. However, they require high levels of returns (sometimes as high as 700 percent within five to seven years) to take on these risks. The second is an easy exit. Venture capital firms realize a profit on their investments by eventually selling their firm interests. They want a quick and easy exit opportunity when it comes time to sell. Basically, venture capital firms provide equity funds to new, unproven, and young firms. This willingness separates venture capital firms from commercial banks and investment firms, which prefer to invest in existing, financially secure businesses.

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