Seeking risk capitalThe page was last modified:
It can be time-consuming to find a risk capitalist who is prepared to invest in your specific business. It’s important to be well prepared and familiar with how different funders think.
Valuation of the business
You and your investor must agree on how much money is needed, and when its needed. The value of the business and the investor’s contribution must also be valued. The terms of the partnership itself will be regulated by a shareholder agreement. One important factor when a business is valued is to see what liabilities and agreements it has. An investor always conducts a review of all agreements entered into by the business before making an investment.
Depending on the scope of the investment and how difficult it is to assess the project, it usually takes between two and six months until you have access to the money.
The valuation is affected by how much has been invested in the project in the form of working hours and expenditure, and what the business is expected to be worth when the investor plans to sell their share.
More and more guidelines and regulations are being introduced requiring institutional investors to report how they take sustainability into account in their investments. So it is a good idea to be prepared and be able to describe this in your discussions with any investor.
Advantages and disadvantages of risk capital
One advantage of risk capital is that you have resources to be able to invest in your business and can develop it faster. It also gives the business an advantage because there are no interest payments required on the capital. A risk capitalist will usually have expertise and contacts to help you develop your business.
One disadvantage of bringing in an external investor is that it reduces your control of your business. A risk capitalist will often demand rapid growth. Comprehensive and regular reports on how the business is progressing will also be required.
You should also consider where the risk capital money comes from, and ensure that your personal values and those of the business align with the risk capitalist. This is essential to ensure a long-term relationship. If you are running a value-driven business that strongly communicates its values, there are also risks in accepting capital from an investor who is not in accord with those values.
Responsible: Swedish Agency for Economic and Regional Growth