Sep
10
2019

How Venture Capital Is Different From Traditional Financing?

Venture capital is a new form of financing that has come as a boon for young entrepreneurs and it plays a strategic role in financing small scale enterprises and high technology and risky ventures. In all the developed and developing nations it has made its mark by providing equity capital, so, they are more like equity partners rather than financiers and they are benefited through capital gains.

As young and growing businesses need capital at the right time, not only to float their company in the market, but also to survive in the long run. When financial institutions like banks and other private financial organizations hesitate to take the risk of early stage financing, since the credibility of the budding firm is not established, venture capital firms comes into the foray to fund the project in the form of equity which can be termed as “high risk capital”.

Although there is a misconception that the interest of venture capital firms are mainly driven by cutting edge technology in the industry, it is not always the case with all venture capital firms. A venture capitalist associates high risk with huge profits. Of course after thoroughly analyzing the prospects and consequences and the viability of the project. The venture capitalist becomes a partner with the entrepreneur in his business. True venture capital financing need not confine itself to high end technology products, any risky idea with great potential can be financed and venture capital is an all powerful mechanism to promote and institutionalize entrepreneurship.

Mainly venture capital focuses on growth. A venture capitalist is very much interested to see a small business growing into a larger one. He assists in setting up the business, funding it and comes all along to seethe firm grow. If it is a potential equity participation, the venture capitalist can come out of the partnership once the company becomes profitable and take back his money by selling the shares or convertible securities. If the firm opts for a long term investment from the venture capital finance, the financier has to develop an investment attitude for a long term, say five or ten years to allow the company to make large profits.

Another form of financing is that the venture capitalist has his hands on management by which he becomes an active participant in the operations of the firm and his thinking is streamlined as to how to multiply and make quick money which is a win-win situation for both sides. Not only finance, the venture capitalist also contributes to marketing, technology upgradation and management skills to the benefit of the new firm.

The venture capitalist’s management approach is significantly different from that of a banker whose prime concern is collaterals and securities in the form of assets. He keeps his hands off the management and plays safe. The venture capitalist can also not behave like a stock market investor who invests money without having thorough knowledge about the company’s business and management. He combines the qualities of a banker, stock market investor and an entrepreneur in one.

Latest trend is that popular and giant software companies promote their content through the budding enterprises, by providing with the latest technology, training and expertise apart from finacing, which spreads the geographical area of operations of the parent company and also expand their territory to scale greater heights. Venture capital firms should focus on fostering growth and development of the enterprise and need not confine their interests only to finance technology, infrastructure, information technology services and the like. They need to diversify their investment in various sectors and even revival of sick units can be thought of as one of the options if there is potential in the business.

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Sep
03
2019

Using Blockchain Technology Companies for Trade Finance

One of the most propitious industries for blockchain technology is trade finance. Many of the world’s largest banks are putting time into its research and development.

Thanks to a consortium of 71 global financial leaders, R3CEV, much has been uncovered about potential uses of blockchain technology.

Since 2016, R3 has executed several pilot runs in the marketplace to complement their research. They will continue to improve these strategies until ready to fully enter the market.

So, what are some of their findings of potential use? Here’s the future of trade finance with blockchain technology companies.

Monitor Real-Time Status and Condition

One of R3′s members, CBA, is a leading contributor to the research of blockchain technology. Currently, they are undergoing 3 different projects to analyze blockchain use.

They are conducting a trial run with exporters who ship cotton. A humidity monitor is placed inside the canister, which is linked to IoT and GPS.

This monitor allows consumers to track their shipments with real-time status. Also, they are able to evaluate the condition of their product as it travels through.

Other national blockchain technology companies are running pilots, similar to this study. In Singapore, Hellosent is conducting similar tests. However, they’re studying the import of French wine.

Eliminate Unpaid Settlements

A growing issue for grain farmers is a financial loss due to trade insolvencies. An estimated $50 million was lost in 2014 because of this activity.

It takes roughly 4-6 weeks for a farmer to receive payment for their shipments. At that, often times conflict arises between farmers and buyers over payment complications (failing to pay the appropriate amount, late payment, etc.).

Australian start-up, Full Profile, has taken matters into their own hands.

Their blockchain platform allows farmers to now receive automatic payment upon delivery of grains. This will significantly reduce the risk of dispute between farmers and buyers.

Once Full Profile’s application is fully functional in a domestic setting, they will expand on external trade.

Digitize

The use of blockchain technology can also be beneficial to reducing financial loss and risk. Upon further development, it will be able to digitize sales and legal arrangements.

Trade finance is an unwieldy industry, that relies heavily on settlements and contracts. Currently, most of these agreements are handled the old-fashioned way: paper copies.

Blockchain technology will remove the need for this paper-based system. This ultimately reduces the risk of financial loss as documents are often lost, mishandled, or tarnished.

Electronic documentation can be tracked much more efficiently. Also, it cuts out the need for a third-party verification system.

Interested in Learning More About Blockchain Technology Companies?

Blockchain technology creates transparency in financial trade between buyers and sellers. From the moment an order is made up until payment, blockchain is capable of simplifying the trade process.

Are you looking to jump into the world of international trade? You’re at the right place. It would be great to know your thoughts and comments.

At Adam Smith Associates Pvt. Ltd., we aid our clients through all of their trade finance needs. Contact us to learn how we can help you!

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