What is Venture Capital?

What is Venture Capital?

What is Venture Capital?

The phrase venture capital is ominous and intimidating. It seems to only belong in conversations among the super rich. Simply put, the term refers to the investment made by a venture capital firm into a young or new business to provide the needed cash to operate and grow the business. The VC firm is then part owner and advisor to the new company, helping it get off the ground.

Entrepreneur Presents Case
When an entrepreneur has an idea for a business but has no cash (capital) to start and run the business, a venture capital firm might be willing to invest in the new company with an agreement of receiving a certain percentage of profit or stock (or combination) in return.

A venture capital firm partner will listen to the entrepreneur pitch their business idea. If the investor sees promise in the new idea and the founder, the firm will investigate the character of the entrepreneur and other details before deciding to take the chance and make the investment.

If they invest, the firm bets the new company will succeed, and they will get their money back, plus a substantial amount greater. The VC firm usually requires 25-30% equity in the business.

Profits If Successful
In addition to providing funds, the VC firm will have the choice of being actively involved in the business, advising and mentoring the fledgling owner to grow the business.

When the company is up, running and profitable, the VC will receive the agreed upon percentage of profits or preferred stock which they bargained for upon investment. That means the VC can then sell the stock and receive back their investment plus profits.

VC firms hope to receive five to ten times the original invested amount within three to five years of startup.

As Seen On TV
A mini speed-version of this transaction is the TV show, Shark Tank, where entrepreneurs present their innovative product to the five billionaires in hopes of receiving an investment from one of them in trade for a percentage of the new business and possibly a mentorship or access to the billionaire’s resources. But business strategists warn that this TV version of venture capitalism is not exactly how it really goes.

Most Cases Not Chosen
Since nearly 600,000 new companies are started every year in the US and only 20% are successful, it is very difficult to obtain an investment from a VC firm. It is a very high-risk investment.
It is commonly said that high-risk investments can return very high profits. More often than not, though, they return a total loss, which is why venture capitalists select so few of the business opportunities they hear. Something in the presentation or presenter has to really impress and strike to the heart for an investor to choose to investigate further.

The Angel Investor
Similar to a venture capitalist is an Angel investor: a singular wealthy person who makes the the investment on their own, not as part of a firm. The Angel gives start-up funds in much the same way and with similar agreements as a VC. In this case, the investor is an angel for taking the chance on the person starting a business.

High Risk Investing
Because high risk can return high profit, but usually doesn’t, most investors diversify their investments into low risk, medium risk, and high-risk categories, so they don’t lose all their money.
When successful, the venture capitalist and the fledgling business owner can both see a hefty profit.

Business Building,10,Marketing,49,Money,20,Small Business,13,Team Building,14,Technology,10,Viral Content,5,Women in Business,7,
Business & Marketing Tips: What is Venture Capital?
What is Venture Capital?
What is Venture Capital?
Business & Marketing Tips
Loaded All Posts Not found any posts VIEW ALL Readmore Reply Cancel reply Delete By Home PAGES POSTS View All RECOMMENDED FOR YOU LABEL ARCHIVE SEARCH ALL POSTS Not found any post match with your request Back Home Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sun Mon Tue Wed Thu Fri Sat January February March April May June July August September October November December Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec just now 1 minute ago $$1$$ minutes ago 1 hour ago $$1$$ hours ago Yesterday $$1$$ days ago $$1$$ weeks ago more than 5 weeks ago Followers Follow THIS CONTENT IS PREMIUM Please share to unlock Copy All Code Select All Code All codes were copied to your clipboard Can not copy the codes / texts, please press [CTRL]+[C] (or CMD+C with Mac) to copy