The Importance of Venture Capital for SMEs

Our SMEs are the backbone of our national economy. With the value added they create, their contributions in the employment sector, their investments and with their import and export percentages, they play a vital role in our economy. On the other hand, our SMEs have various difficulties within the market. Most of these problems stem from the lack of financial resourses. In other words the SMEs find it hard to find an investor with the proper funding. All of these problems are basically sourced from financial difficulties, in other words being unable to reach the adequate funds. On the contrary, enterprises with no financial obstacles can overcome their difficult situation. They usually acquire professional consultancy services from an outside source and/or employ experts from the sector to top such complications.

The major and unsolved problem currently experienced by the SMEs is the difficulties obtaining financial sources. When we ask ourselves why our entrepreneurs experience various shortages of finance and why they utilize bank resources, we see in general that the shortages occur mainly at the initial stage of the investment. The main reason for this, is because most entrepreneurs define investment as solely purchasing land and property and machinery / equipment. The importance of the required operation capital is usually left out. The necessary attention is not given to this factor as it is thought to be an easy to access tool for the survival of the company. However, after the point where investments are made and production commences, many SMEs find themselves in a vicious cycle as the whole operation is unable to operate without the adequate resources. In order to activate and run the business and then later be able to sustain it most companies produce under capacity which in turn does not fit the economies of scale to fully compete in the market and become a profitable business. On the other hand, most companies undercut selling prices and run on minimum profit in order to enter the market and be a regular player, which in turn prevents them from accumulating the vital operation capital they so desperately need to survive. As a result, in a short while these companies are either forced to shut down and/or change hands.

Venture capital is most important at this very point for the progress and survival of innovative SMEs. Following the intervention of venture capital funds, companies experience a swift restructuring process while making considerable progress on the institutionalization process. With the improving institutional image, the company has the chance to reflect that success on to its financial figures. While the financial structure of the company improves its market image with other companies, goods and services providers and above all customers benetit as well. This enables the company to produce qualified goods and services with competitive prices and eventually helps in a fast and stable growth. Apart from financing, venture capital funds play an important role in providing consultancy to companies. Due to their vast experience, connections and business relations, our SMEs are supported for the resolution of various problems in an easier manner which normally could not have been overcome on their own. This provides a major contribution to our companies' fast development and provides an opportunity to our companies' second and third generations to reach a healthy structure.