Venture capital is defined as an investment strategy that channels funding directly or indirectly to companies, maximising the value of these companies through professional management and advice, with the subsequent aim of divesting to provide high capital gains to investors.
Venture capital entities obtain capital from a series of investors through a commercial activity whose mercantile purpose is to generate profits or returns for these investors.
Their main purpose is to take temporary stakes in the capital of companies that are neither real estate nor financial in nature, and which are not listed on the primary stock market or any other equivalent regulated market in the EU or other OECD member countries.
Venture capital typically focuses on new business projects or companies with high growth potential and innovative approaches, providing funds in exchange for acquiring a percentage of their shares, thus gaining partial control of management.The objective is not to remain in the company indefinitely, but to withdraw from the business once the company’s value has increased and the expected return is obtained.
The main characteristics of venture capital are as follows:
- Entity activities: temporary acquisition of stakes in companies’ capital. These cannot be financial or real estate companies, or those listed on the primary stock exchange.
- Complementary entity activities: facilitating participative loans; other forms of financing, only for investee companies that form part of the mandatory investment coefficient; advisory activities for companies (in venture capital entities for SMEs, this activity is a mandatory requirement).
- Limit on the marketing of their shares or units: to professional clients or investors who invest a minimum of 100,000 euros and declare in writing that they are aware of the risks; or if the venture capital entity is listed on the stock exchange; or if the shares are acquired by administrators, managers or employees of the management company or self-managed entities.
- They have a mandatory investment coefficient of their assets.
- Entities are obliged to include in their name the respective denomination: “venture capital company”, “venture capital fund”, “SME venture capital company”, “SME venture capital fund” and “management company of closed-end investment entities”, or their abbreviations “SCR”, “FCR”, “SCR-Pyme”, “FCR-Pyme” and “SGEIC”.
Types of companies these entities can adopt:
Venture Capital Companies (SCR)
These are venture capital entities in the form of a public limited company.
The minimum capital is 1,200,000 euros (900,000 for ECR-SME), with 50% paid up at the time of incorporation.
It can act as a management company itself (self-managed company) or may include in its bylaws the possibility of its assets being managed by an SGEIC or an SGIIC.
Venture Capital Funds (FCR)
Funds are separate assets without legal personality, belonging to a plurality of investors.
The minimum committed assets, at the time of incorporation, shall be 1,650,000 euros.
The fund’s participants are not liable for the fund’s debts except up to the limit of the fund’s assets. The fund’s assets will not be liable for the debts of the participants or the management companies.
Closed-end Collective Investment Companies (SICC) and Closed-end Collective Investment Funds (FICC)
Contributions for the initial constitution and subsequent contributions to the assets of FICCs shall be made exclusively in cash.
Management Companies of Closed-end Collective Investment Entities (SGEIC)
These are public limited companies or limited liability companies.
Their corporate purpose is the management of investments of one or more Venture Capital Entities (SCR) and/or closed-end collective investment entities (EICC), as well as the control and management of their risks. They may perform other functions such as administering these entities, their commercialisation, property management, etc.
Among the main advantages of venture capital, the following can be highlighted:
- It allows access to a type of financing that is difficult to obtain through other entities or financial tools.
- It promotes the company’s development not only through the contribution of financial resources, but also with management experience.
- It can bring good reputation to the brand and business.
- Investee companies become more competitive.
- It accelerates company growth, improves profitability and the ability to generate profits.
In conclusion, venture capital presents itself as a powerful financing and boost tool for companies with high growth and innovation potential. This strategy not only provides the necessary financial resources, but also management expertise, improves competitiveness and accelerates the growth of investee companies.
Although it involves certain risks and the temporary transfer of partial control, the advantages it offers in terms of access to financing, boost to development and improved reputation make venture capital an attractive option for many Galician companies seeking to expand and consolidate in the market.
For companies considering this financing route, it is essential to fully understand its characteristics, types and implications, as well as carefully evaluate whether it fits the specific needs and objectives of their business project.
