The differences compared to a traditional investment
The substantial difference could easily be defined: on one hand a shareholder, who shares burdens and honors with the entrepreneur, on the other a foreign subject, who tries to limit as much as possible his risk of exposure requiring guarantees to the entrepreneur himself.
In fact, the bank, which typically asks for a loan, does not become a member of the company. He therefore asks for guarantees, which can be personal to the entrepreneur or part of the company assets and can be retested on assets where the company does not repay the debt.
The Fund, on the other hand, is aware that it is taking on part of the risk, and it is therefore in its interest to make the company work in the best possible way, with the aim of minimizing risks and maximizing profits and growth.
The Fund, which also invests in a company with the awareness that sooner or later - based on its investment strategy - will sell its shares in order to monetize the investment itself, does not ask for and does not provide for any form of reimbursement. Moreover it is a flexible source, useful for financing processes of growing. Instead, the bank has specific deadlines for repaying the loan, which are totally unrelated to the company's performance.
Very often entrepreneurs prefer the classic form of investment, banking, not to have interference on the internal decision-making process, however, underestimating that in the face of a lack of interference, there is also very little willingness to re-discuss the debt, especially in times of difficulty.
In the next chapter, the reasons for seeking venture capital.