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Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 2608
Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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Advantages and disadvantages of Corporate venture capital,

Customer Question

advantages and disadvantages of Corporate venture capital, Private venture capital, Angel financing, and Debt financing
Submitted: 1 year ago.
Category: Finance
Expert:  Jason M. Tyra, CPA replied 1 year ago.

Hi There:

Bot***** *****ne up front- investors/stockholders are entitled to all residual income of the business. This means that the effective cost of equity capital is 100%. Equity capital includes all forms of venture capital, angel financing, crowdfunding, etc., unless specifically structured as debt.

Many companies choose to borrow rather than sell stock because interest payments are fixed and tax deductible (dividends are not), and because lenders don't normally get to participate in the management of a company. All equity investors will eventually want to see a return on their investment, whereas lenders just want their money repaid in accordance with the note.

Most angel investment and venture capital investment (especially for tech companies) is structured as convertible debt, meaning that the cash can either be repaid at an agreed upon rate or converted into stock. This is basically meant to be a hedge by the investor against concept failure, but also allows founders to buyout the convertible note holders if their concept takes off early.

This is kind of a broad question. What else can I tell you?