Patient capital, or long-term capital, is an investment strategy where the investor is willing to defer any return for an extended period of time. This can benefit both companies and investors, with the anticipation that gains in the future will be more substantial. Investors who can afford to wait for a return typically have other investments and established income streams.
Patient capital is another name for long-term capital. With patient capital, the investor or sponsor is willing to make some type of investment in a business without expecting a quick profit. Instead, the investor is willing to defer any return for an extended period of time. The anticipation with patient capital is that by forgoing any kind of immediate return, the gains in the future will be more substantial.
There are many ways in which patient capital can benefit both companies and investors. Startups usually take at least a year to become self-sufficient with the revenue generated. In some cases, the process can take up to five years, assuming the business is able to gain a foothold in the market. During this period of self-sufficiency, investors will not require any kind of dividend or interest payments on loans made to the business. This frees the new company from having to meet obligations while it is in the process of being established.
For investors, expanding patient capital can be a good thing for two reasons. First, the rate of return on such a long-term investment often carries a higher return once the business begins to pay. For an investor looking for an investment that will produce a substantial return five to ten years from now, investing patient capital in a business is a great move. Second, there is the possibility of tax breaks on the investment amount. While the amount of the tax benefit varies from country to country, many governments tend to offer some type of incentive as a way to promote business development.
Patient investors are typically people who can afford to invest in a project for the long term and wait an extended period of time before earning a return. Because there is no immediate return with patient capital, these investors typically have other investments and established income streams that allow them to handle other expenses and business interests.
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