Small startups are often incubated by a business development company.
A business development company, also known as a BDC, works to foster or incubate small businesses or start-ups. A BDC is similar to a venture capital (VC) fund, but while a VC fund is private, a business development company is publicly traded. In other words, business development companies typically sell shares in public indices like the S&P, AMEX, and NASDAQ.
Some large business development companies coordinate investments for several private companies.
Business development companies generally must comply with the standards and regulations set by the government of their country. In the United States (USA), for example, a business development company must comply with the regulations established by the Investment Company Act of 1940. These regulations establish that said company can invest only in private entities, unlike of listed companies. In addition, they must file quarterly and annual reports with the US Securities and Exchange Commission. The rules for specific regions and countries can usually be found through an Internet search.
Some large business development companies coordinate investments for several private companies. Other companies have internal departments that provide venture capital funding. Venture capital financing and business development company financing serve to incubate small businesses and investments. The goal is to launch startups into productive businesses and then earn a long-term return by benefiting from equity shares. Companies working to provide these types of business incubators often take on multiple roles; Some can help build a business plan, set a budget, create production schedules, or any other practical task. Other companies or funds may be created to provide capital only, or may offer basic advice and certain important business services.
To qualify as a business development company, an entity generally must meet standards to diversify its holdings and, in the United States, must collect at least 90% of the gross taxable proceeds from the sale of bonds or shares. A business development company may also employ something called mezzanine financing, which involves raising money for a business that is up and running but has not yet opened; This type of financing can also be applied to business expansions that are in the planning stages but not yet operational. Some critics of business development corporations compared them to Ponzi schemes. Proponents of business development companies claim that the funds democratize the investment world by allowing people to share in the wealth generated by the incubation process.