What is Patient Capital?

Patient capital is another name for long-term capital. With patient capital, the investor or backer is willing to make some type of investment in a business with no expectation of turning 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 foregoing any type of immediate return, the profits down the road will be more substantial.

There are many ways that patient capital can benefit both businesses and investors. Startup businesses often take at least a year to become self-supporting with generated revenue. In some cases, the process may take up to five years, assuming the business is able to carve out a niche in the market. During this period of becoming self-sufficient, investors will not demand any type of dividends or interest payments on loans made to the business. This leaves the new company free of having to meet obligations while it is in the process of becoming established.

For investors, extending patient capital can be a good thing for two reasons. First, the rate of return on a long-term investment of this type often carries a larger return once the business does begin to pay. For an investor who is looking for an investment that will yield a substantial return five or ten years down the road, the investment of patient capital in a business is a great move. Second, there is the potential for tax breaks on the amount of the investment. While the amount of tax benefit varies from one country to another, many governments do tend to offer some sort of incentives as a way of promoting business development.

Patient investors are normally people who can afford to invest in a long-term project and wait for an extended period before realizing a return. Because there is no immediate return with patient capital, these investors usually have other investments and revenue streams established that allow them to handle other expenses and business interests.