Success Factors in Reward based and Equity based Crowdfunding in Finland

Master’s Thesis 
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before loaning capital is highly standardized, which means businesses that are denied 
a loan by one will likely be denied a loan by all. 
2.1.3. Venture Capitalists 
Another option small businesses have to attract funding is to attract venture capital, 
which has become an increasingly important intermediary in financing in recent 
years
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. Venture capitalist companies invest in high-risk, potentially high-reward busi-
ness ventures by purchasing equity while the businesses are still private owned. 
The 
businesses funded via venture capital are often small and young, burdened with high 
levels of uncertainty. 
These are businesses that might have difficulty attracting other 
kind of financing.
(
Gompers and Lerner, 2001) 
When assessing investment opportunities, venture capitalists hold businesses under 
intensive scrutiny (Gompers and Lerner, 2001). They are very interested in the growth 
potential of the business and the potential financial returns they might expect. Venture 
capitalists look through business figures in regards to profitability and valuation, but 
focus more on market conditions – its size, growth and level of competition. (Mason 
and Stark, 2004) 
Selling equity shares means the entrepreneurs must release part of their ownership in 
return for the funding and allow venture capitalists to participate in the business. Ac-
cording to 
Valanciene and Jegeleviciute (2013) venture capitalists gain significant 
control over the business via their investment. Venture capitalists want to reduce the 
uncertainty of their investment by being closely involved in the business. This is 
achieved by monitoring the business and taking seats in its board of directors. If nega-
tive signals concerning the future potential of the business arise, venture capitalists are 
prone to deny new funding. (
Gompers and Lerner, 2001) 
A venture cycle follows a somewhat standardized pattern. First, the business raises 
venture funds. Then the business is monitored and value is added. Finally, the busi-
ness exits successful deals and provided financial returns to its investors. This cycle is 
renewed and new funds are invested to the business if both parties are so inclined.
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https://www.gsb.stanford.edu/insights/how-much-does-venture-capital-drive-
us-economy

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