Venture Capital Investments and Funds

Venture Capital Investments
Venture Capital Investments

Venture capital is capital provided by somewhat outside investors for financing of new, growing or struggling businesses.

Venture capital investments generally are high risk investments but offer the potential for above average returns.

A venture capitalist (VC) is a person who makes such investments.

A venture capital fund is a pooled investment vehicle (often a partnership) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans.

For aspiring entrepreneurs looking to locate and secure venture capital they have the option of seeking the support of a mentor capitalist.

A mentor capitalist is an expert not only in acquiring capital but can also provide support and direction to early start-ups and seeds.

Venture capital general partners (also known as “venture capitalists” or “VCs”) may be former chief executives at firms similar to those which the partnership funds.

Investors in venture capital funds (limited partners) are typically large institutions with large amounts of available capital, such as state and private pension funds, university endowments, insurance companies, and pooled investment vehicles.

Other positions at venture capital firms include venture partners and entrepreneur-in-residence (EIR).

Venture partners “bring in deals” and receive income only on deals they work on (as opposed to general partners who receive income on all deals).

EIRs are experts in a particular domain and perform due dilligence on potential deals.

Venture Capital Funds

EIRs are engaged by VC firms temporarily and are expected to develop and pitch startup ideas to their host firm (although neither party is bound to work with each other).

Venture capital is not suitable for all entrepreneurs.

Venture capitalists are very selective in deciding what to invest in; as a rule of thumb, a fund invests only in about one in four hundred opportunities presented to it.

They are most interested in ventures with high growth potential, as only such opportunities are likely capable of providing the financial returns and successful exit event within the required timeframe that venture capitalists expect.

Because of such expectations, most venture funding goes into companies in the fast-growing technology and life sciences or biotechnology fields.

If a company does have the following qualities that venture capitalists seek:

1. Solid business plan.

2. Good management team.

3. Investment and passion from the founders.

4. Good potential to exit the investment before the end of their funding cycle and

5. Target minimum returns in excess of 40% per year.

For the company it becomes much easier to get venture capital.