Page 87 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.71, # 2, 2014, pp. 81-93

Another advantage of venture capitalists is that an entrepreneur can obtain large sums of

funding if they can match up. Recently, a venture capitalist gave $30 million to fund a PhD program

(Dolan, 2013). These kinds of large sums would be hard to obtain through a bank or other loan option.

As with business angels, it may be hard to get a venture capitalist on board with the venture.

Many studies have been conducted to try to determine what causes a VC to take on a project. It does

again seem to be partially a matter of networking. A VC is more likely to fund the venture if they

have a social connection with the founders (McGinn, 2012). So it takes time to develop these

relationships that can fund the venture. However, the primary influencers on a VC have been found

to be the potential for return and the founders’ experience. So while it may be hard to obtain VC

financing, if the business plan is solid there is potential for raising large capital amounts.

Another disadvantage is that venture capitalists have lowered funding in certain sectors.

Particularly, the clean technology industry has seen a decrease in venture investments recently. This

is due to high profile blowups and bankruptcies (Hull, 2013). So if the venture is in a certain industry

that are higher risk, it may have trouble securing financing from venture capitalists.

As a venture begins to thrive and enter the survival stage, depending on business needs and

success, the entrepreneur may require additional capital for expansion. Other capital needs may

surface as requirements of additional property, plant and equipment to satisfy an increase in demand,

or warehouse space to facilitate buildup of product through the use of working capital to prepare for

cyclical sales peaks and valleys. At this stage, the firm has established a trajectory of success with at

least two-to-three years’ worth of history demonstrating a track record of financial stability and

growth which, incidentally, will be required by first round financing providers such as Small

Business Investment Companies (SBIC’s) through the Small Business Administration (SBA) or

commercial lending banks. Large corporations, through Corporate Venture Capital (CVC) business

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