Risk capital

Last modified:

Wednesday 23 October 2019

What is meant by risk capital?

Risk capital describes funds invested by individuals or companies in the capital of other companies, with the aim of obtaining a certain benefit and/or providing support for the development of the activity.

The investment goes together with a more or less significant level of involvement in the company's management.  In addition to the contribution of financial resources, the investors also usually give the company the benefit of their experience and networks.

The concept of risk capital is often used in the more restrictive sense.  Risk capital refers to investments in projects with significant growth potential, with a high level of return and risk and/or with innovative and technological aspects which may be decisive.

By convention, the concept of risk capital does not cover the entrepreneur's personal investment. 

Why turn to risk capital investors?

You won't always have the resources or the desire to form the level of capital required to carry out your company's activity alone.

One of the possibilities you have in this situation is to complement your own personal investment with investment from external capital investors (risk capital investors).

You should be aware that opening your company's capital up to external investors may have significant consequences.  In this way, you reduce your share in the shareholding structure, which may affect your level of control over daily activities, the determination of strategic choices, etc.

What are the different sources of risk capital?

There are various types of stakeholders:

Companies:

Individuals:

  • Business Angels
  • Any other individual wanting to invest in the capital of a company

And there are several possible investment channels:

  • Through regulated trading markets (for example: the stock exchange)
  • Through networks organised for this purpose (for example: for a portion of the investments made by Business Angels or risk capital funds)
  • Through the crowdfunding (FR) platform
  • Through any other contact between the entrepreneur and a potential investor (company or individual)

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