The easiest way to understand this term is to break it up into parts.
Strategic + capital + infusion = a systematic investment of funds that brings in the much needed help for startups and ventures. It is synonymous with the term “capital injection”, which is provided to companies when they are in distress, though not at all times. It is also given when a new business starts up and requires investments. Usually strategic capital investments are in the form of cash, equity or debts.
The rate at which new startups are coming is equal to the rate at which they shut down. More often than not because of lack of adequate resources.
A company can benefit through strategic capital investment in two ways, either through equity in the company or through debt.
- EQUITY ROUTE
Companies which use strategic capital investment through the equity mode give percentage of shares to the investors in the form of fresh shares instead of capital investment. Among the fresh that are given to the investors there may be two types of shares.
- One with voting and differential rights to dividend and,
- If one needs to wind up the business, then such equity shares give the the right of preference between payment of dividend and its repayment.
- DEBT ROUTE
In this method the company has a choice of buying debentures or providing security at its disposal. It might choose from any to impede company’s immovable and movable assets.
Coming on to the main topic, let’s see how do companies actually benefit from strategic capital investment. From an equity point of view, these mentioned methods help the company in strategic capital investment.
In economics, capital apart from land and labour, is the basic requirement to start a business. The break even point is not reached early in the trade. When a new venture just starts up, the investments made are not only equal but more than the revenue generated. The initial investment is very crucial to keep the business afloat and running in the market. Each penny of the money invested is fully exploited to reap profits.
Getting an investor is not at all easy. People just do not give away their hard earned money. To make an investment the investor needs to feel the conviction in work. Many ideas get shelved because of lack of investment. That is why there is respect in the market for those venture who are able to get the right investors at the right time. Hence the ones who are able to get the right investors in the beginning itself get due attention. A good reputation builds up the industry which goes a long way. Once you get the right investor, then it opens new doors for other investments.
The pessimists will always be there. The ones who never stop pointing a finger cannot look beyond the problems. In the business world, each and every step taken has a fair share of profit and loss. Age old tricks of trade may fail in your case. There is no guarantee about that. This is the space where new ideas and strategies breed.