Business Development Companies, pejoratively known as BDCs, are specialized type of Investment Companies that were created by Congress in 1980 to stimulate investment in private companies that may be overlooked by traditional venture capital firms. BDCs have a unique role in the business world and could offer real benefits for certain entrepreneurs and investors.
Primarily, a BDC allows individual investors the opportunity to invest in private businesses usually unattainable by retail investors. They do this by providing capital funding to smaller firms in response for debt, equity, or other assets. In this way, the BDC acts somewhat similarly as a venture capital fund, albeit with some substantial differences.
One of the distinguishing features of BDCs is their public nature. Unlike venture capital funds, which are typically limited to accredited investors, BDCs are publicly traded. This means that shares of a BDC can be bought and sold on a stock exchange. This provides everyday retail investors with the opportunity to invest in early-phase or struggling companies and benefit from their potential success or recovery.
Advantages and Drawbacks of Using a BDC
For entrepreneurs, a BDC can be an attractive financing option. BDCs have more flexible investment criteria and a longer-term return horizon than traditional venture capital firms. This means that businesses might be able to receive funding from a BDC that they would not get from other sources. Additionally, taking investment from a BDC does not require giving up control of the company, unlike some other investments such as private equity.
For investors, BDCs can be an exciting way to potentially profit from the success of early-stage companies. However, these investments are also riskier than more established and mature companies. Therefore, they may not be suitable for all investors, especially those who cannot stomach the high level of volatility these above-average returns require.
BDCs in Action
While BDCs exist to provide financial aid to small- and medium-sized enterprises (SMEs), the scope of their role extends far beyond the borders of financial investment. It is not uncommon to find BDCs investing in a myriad of enterprises – from tech startups to sole proprietorship businesses such as top kids party entertainers Perth.
These entertainers symbolize the variety of businesses that stand to benefit from BDCs. In essence, BDCs provides a financially viable way for these businesses to reach their full potential, creating a springboard for business owners to start, flourish, and impact their local communities positively.
Key Takeaways
As they democratize the venture capital model, BDCs have emerged as an essential player in capital formation, particularly for under-served segments of the business community. By allowing regular investors to participate in early-stage, risk-capital investments, BDCs help fuel economic growth and job creation.
Albeit, partnering with a BDC is not necessarily the right move for every business, and similarly, investing in a BDC is not for every investor. Entrepreneurs and investors alike must carefully consider their goals, comfort level with risk, and alignment with the BDC’s strategic objectives.