Generally, a venture capital firm consists of a pool of investors, a traditional partnership established by a wealthy family, or an insurance company. Venture capital firms vary in size and scope of interest. Some offer financing for start-up businesses, while others finance only established businesses. Whether the firm requesting the money is a start-up or an established business, a business plan is essential. Only two percent are finally accepted.
Many people think that for a business, borrowing money is a sign of weakness.
To be sure, it can be a sign of financial weakness. But as we pointed out earlier in this chapter, businesses borrow money on a short-term basis for many valid reasons besides desperation. There are also valid reasons for long-term borrowing. In fact, successful businesses often use financial leverage created by borrowing money to improve their financial performance. Financial leverage is the use of borrowed funds to increase the return on owner's equity.