Venture Funding vs M&A

Sometimes, it is difficult for small companies to compete with large ones that have long occupied a niche in their industry. A successful start in business requires impressive capital and resources that not all entrepreneurs have. In such situations, M&A or Venture Funding can be an excellent solution.

Purpose of Acquisition and Merger

The main objective of M&A is to increase profits. The main motive behind most M&A deals is the synergy effect. This is complementary cooperation between two or more companies, which is expected to achieve a better result and higher profits. In addition, there are other motives, namely:

  • the possibility of obtaining additional discounts from suppliers for raw materials and other resources due to an increase in the volume of purchases;
  • joint activities in the field of new developments that require the pooling of financial and intellectual resources;
  • reducing tax costs by obtaining benefits;
  • M&A of companies can be aimed at improving performance due to the presence of complementary resources in two or more companies;
  • obtaining privileges in the capital market in the form of access to the most favorable lending conditions.

Not always the motives are due to direct savings of money. In some cases, they pursue the following:

  • the ability to demonstrate the high performance of the company;
  • improving the image of the company in connection with the growth of its scale and increasing the level of incentives for managers;
  • striving for such a size of the company when it becomes an additional guarantee of stability.

Thus, the number of motives driven by financial savings and not related to direct monetary benefits can be very large: they all depend on specific situations.

M&A Advantages

Check out the M&A prominent benefits:

  • weakening of competition;
  • high probability of achieving good results in a short period due to the efforts of both parties;
  • the possibility of buying undervalued assets;
  • acquisition of a well-functioning sales system;
  • the company's ability to enter new geographical markets.
  • Why Venture Capital is Needed?

    Venture capital comes from wealthy private investors and venture capital funds. For young projects, it is often the only source of funding. After all, traditional methods of lending are not available to them: banks are not ready to issue loans for such risky enterprises or agree to give money only against the security of tangible assets. However, technology companies tend to lack them, and their main assets are intellectual.

    At the earliest stage of business development, this function was assigned both to the entrepreneurs themselves and their savings, as well as to the funds of their families and friends. These resources could be very limited or non-existent, and entrepreneurs often turned to so-called business angels or raised money through crowdfunding.

    Business angels are the same entrepreneurs who have already built their own business, or private venture investors for whom this business is not the main one. Business angels usually have less available capital than funds. What crowdfunding has the potential to provide is evaluation and feedback on a product idea.

    Nevertheless, when considering such funding options, it is always essential to keep in mind the key feature they lack. The main benefit that venture capitalists bring to projects, in comparison with individuals or crowdfunding, is not just funding, but also wide expertise and experience.

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