Access to funding plays a critical role in the success of a startup’s development. One funding source that supports startups and high-growth potential companies is venture capital.
However, not every business is suitable for this type of funding. Before considering venture capital, it is essential to understand its definition and the various types available.
Venture capital can be classified into three main categories based on the method of providing assistance, the fund collection method, and ownership. Here is a detailed explanation of each category.
Also read: The Top Venture Capital Firms in the World
Venture Capital Based on The Assistance Method
Types of Venture Capital (source: freepik)
There are two types of venture capital based on the assistance method: the single-tier approach and the two-tier approach.
Single-Tier Approach
The single-tier approach means that the company collects and manages the investment fund on its own before disbursing it to the company it has invested in.
Two-Tier Approach
The two-tier approach means that two firms are involved in the venture capital process. One company would be in charge of collecting the funds, and another would be in charge of managing the money that the fund company had collected.
Also read: 12 Best Venture Capital in Southeast Asia
Venture Capital Based on The Fund Collection Method
Based on the fund collection method, there are two types of venture capital: equity venture capital and leveraged venture capital.
Equity Venture Capital
Equity venture capital refers to funding collected mainly from personal pockets.
Leverage Venture Capital
Leverage venture capital is a type of venture capital that involves borrowing capital in the form of debt from multiple parties.
Also read: Top 24 Venture Capitals & Angel Investors in Singapore
Venture Capital Based on Ownership
Types of Venture Capital (source: freepik)
Venture capital based on ownership can be classified into four types:
Private Venture Capital Company
A private venture capital company is a company that does not sell its shares publicly. In other words, this company has not undergone an IPO.
Public Venture Capital Company
A public venture capital company is a venture capital company that has gone public and sells its shares on the stock exchange.
Also read: What is Venture Capital? Definition, Benefits, How It Works
Bank Affiliate Venture Company
Several banks with excess funds or those with a specific purpose in the venture capital industry establish this type of venture capital.
Conglomerate Venture Capital
Several significant corporations have established conglomerate venture capital funds.
For founders seeking venture capital funding, this knowledge is essential to have before creating a funding proposal.
