THE VARIOUS SOURCES OF VENTURE CAPITAL AVAILABLE TO SMALL BUSINESS CONCERNS
Let's start by defining "venture capital." Webster defines it as "Money invested in stocks, esp. new or expanding private enterprises, with the expectation of repayment in profits and dividends but subject to the hazards of ownership, as distinguished from capital loaned by banks; called also risk capital or equity capital."1 Another source defines "venture" as "a business enterprise or speculation in which loss is risked in the hope of profit; a commercial or other speculation."2 While venture capitalists might want to refine those definitions in certain respects, I believe they describe adequately the subject of our discussions here today. We are speaking about that type of financing which normally goes in first and comes out last, if ever. We are talking about the "front money," the money that is normally subordinate to all other financial obligations of the small business concern. While money provided in exchange for common stock is perhaps the purest form of venture capital, that term embraces and supports numerous other types of financing instruments such as convertible debentures, notes with warrants or options for stock and fully subordinated debt.