Understanding venture capital
THE DEVELOPMENT Bank of Jamaica has implemented the Jamaica Venture Capital Programme to develop a viable and sustainable venture capital and private equity industry in Jamaica.
Venture capital is a subset of the private equity asset class which looks at companies in the start-up to growth stages of the business life cycle.
Private equity provides long-term, stable and committed capital to help companies not listed on a stock exchange to grow and become successful businesses.
If you are looking to start or expand your businesses, then venture capital may be a financing option you may want to consider.
Equity investments differ from loan financing as an equity investor exchanges financing for a stake in your company as a shareholder. The equity investor’s returns are dependent on the growth and profitability of your business. On the other hand, a debt financier (usually banks) has the legal right to interest on a loan and repayment of capital regardless of whether your business fails or succeeds.
Many small companies are ‘lifestyle’ businesses whose main purpose is to provide a good standard of living to the owners. These businesses are, in many cases, created out of necessity to provide employment for the owner. Necessity-based businesses are not generally interesting to an equity investor as they are unlikely to provide the financial returns required and may not have the ability to scale and grow.
What type of business is attractive to equity investors?
Venture capital and private equity investors are attracted to businesses that can grow and scale. If your answers to the following questions are yes, then equity investments may be right for your business.
Does your business have high growth prospects?
Does your company have a product or service with a competitive edge and a potentially large market?
Do you or your management team have the relevant industry experience?
Are you willing to sell some of your company’s shares to a private equity investor? For additional information, contact: Jamaica Venture Capital Programme, Development Bank of Jamaica, 11A-15 Oxford Road, Kingston 5. Tel: 929-4000 www.venturecapitaljamaica.com