Getting access to a loan to invest in a start-up venture can sometimes be daunting.
This is because many lending institutions, especially commercial banks, are leery of lending to start-up ventures, terming them as mere conceptual business ideas yet to be proved feasible and therefore full of potential risks.
Instead, most banks are comfortable lending to individual entrepreneurs against their personal assets or regular income than to extend a loan facility to a new business venture against its projected cash inflows.
Many budding entrepreneurs lack a regular source of income to accumulate significant savings for a start-up capital and subsequently are devoid of tangible assets to present as collateral to borrow against.
Consequently, their only resort lies in seeking venture capitalists as a potential source of start-up capital.
Venture capital outfits are those that specialise in funding business ideas drawn in proposals where they see an investment opportunity with feasible growth prospects.
While the majority of venture capitalists do invest in business ideas that are still in the conceptual stage and yet to be tried, they differ in their investment preferences.
There are those that prefer to fund seed capital for start-ups that are still at the conceptual phase, while others are interested in late-stage investing where they go for going concerns with proven performance records.
As a lender of last resort, especially for budding entrepreneurs, venture capitalists are extremely cautious about where they plough their money and the nature and potential of the investment that they fund.