In a bid to capitalize on many emerging technologies, we’re seeing more and more large-scale projects get up and off the ground.
However, with some of these projects costing hundreds of millions of dollars, possibly more, there is the question of just who pays for it.
Sure, the government may be responsible for several, but there are plenty of occasions where other sources are required. Here, we take a look at several of the main ways in which projects can get up and running courtesy of funding.
VC funding, short for venture capital funding, is generally researched for new businesses who just don’t have the reputation to raise money in the public space.
It means that there is always a much higher degree of risk involved and for this reason, investors will be keen to take a higher equity stake. When we talk about higher figures, it can be as much as 75% which highlights just how rewarding this sort of investment can prove to be. As well as the obvious potential financial benefits, it also means that investors can take on decisions and this immediately means that a lot of companies are against this form of funding.
The major difference with this and VC funding is that it is not really designed for startups. Ultimately, any company involved will need some sort of history. It can be in these cases where individuals who have a track record of procuring funding for similar projects are sourced. Such individuals could be someone who is established in general business, or someone who perhaps has performed in the industry. In relation to the latter, academics are regularly turned to and if we were to pick one example, in the oil industry Russ Lea is someone who companies tend to use mainly due to his expertise in the field.
In the case of private equity, investors may charge a performance and management fee. The former could be as much as 20% of profit when the company is eventually sold – so it can be a significant figure.
Perhaps the most difficult source of financing is hedge funds. Again, it’s in cases like these where a renowned funding procurement individual is generally utilized – as the investors which are being “pitched” to are challenging to say the least.
A hedge fund is different as it is effectively mutual funds. These funds have been provided by numerous investors, who then allow a manager to invest in various projects.
Finally, we’re going to talk about corporate finance. This is again something that won’t be suitable for every project – a lot of corporate finance transactions will require the client to hold around 30% of liquid collateral. Once again, it means that its something that won’t necessarily work in start-ups.