The Role of Venture Capital in Financing Small Businesses

17 Pages Posted: 8 Jun 2006

See all articles by Marjan Petreski

Marjan Petreski

University of American college - Skopje - School of Business Economics and Management

Abstract

Venture capital is an important alternative for companies that have difficulties accessing more traditional financing sources and it is a strong financial injection for early-stage companies that do not have evidence for persistent profitability yet. Firstly, deep prescreening process should be performed before investing in small, start-up business because of the information asymmetries, which in turn are the main cause for adverse selection and moral hazard problems. Well performed initial scan ensures good investment. Seed capital provided than enables the firm's set off.

But what is more important is the conclusion that there is much more than just capital that flows from the investors to the organizations in which they invest. Indeed, fresh capital inflow is accompanied with the process of value-adding which provides the company with monitoring, skills, expertise, help and, basically, reputation for attracting further finance. Consequently, the role of the venture capital in financing small business is tremendous. The paper sheds light on these issues.

Keywords: Venture Capital, Small Business, Entrepreneurship, Financing

JEL Classification: G24, M13

Suggested Citation

Petreski, Marjan, The Role of Venture Capital in Financing Small Businesses. Journal of Eentrepreneurship and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=906876

Marjan Petreski (Contact Author)

University of American college - Skopje - School of Business Economics and Management ( email )

Skopje, 1000
Macedonia

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