Where is the line drawn between the function of a venture capitalist and that of a banker?
The difference between a venture capitalist and a banker is primarily in the stage of development of the venture. Banks are not investors; they are creditors. Therefore, bankers do not make investments, particularly in early stage deals that have no assets that could be offered as collateral, nor do they lend to companies without cash flow with which to service debt. So it is unreasonable to expect to find resources for earlier-stage or developmental-stage deals from bankers. Last year the SBA served as a very effective source of guaranteed funding for small businesses, about $15.8 billion invested through its 7(a) guaranteed loan program. But those funds went into operating businesses. When we deal with early-stage ventures that have no assets and no cash flow, we have no alternative but to turn to someone willing to put up money for an equity share of the business. These are risk-takers, investors looking for substantial growth in capital appreciation on their investments.
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