Game of Venture Capitalist

Introduction

Venture Capitalist is a person who invests in a business venture, providing capital for start-up or expansion. The majority of venture capital (VC) comes from professionally-managed public or private firms who seek a high rate of return by investing in promising startup or young businesses that have a high potential for growth but are also high risk. VC firms typically invest in business sectors such as IT, bio-pharmaceuticals, clean technologies, semiconductors, etc.

Investment & Exit

An investment from a venture capitalist is a form of equity financing — the VC investor supplies funding in exchange for taking an equity position in the company. VC investments in businesses are typically long-term (the average is from five to eight years). This is normally how long it takes for a young business to mature to the point where its equity shares have value and the company goes public or is bought out. VC firms expect returns on investment of 25% or greater given the risk profile of the companies they invest in.

What happens when a VC Investor Is Involved?

VC financing is a poor choice for entrepreneurs who wish to retain control of their business. In exchange for providing funding most VC firms obtain majority voting rights by having the majority of the shares, as well as special veto rights. VC investments are often structured so that in the case of a share sale the VC investors have priority rights in terms of compensation.

To additionally safeguard their investments VC firms take an active role in the businesses they invest in, typically supplying a board member and involving themselves in all important management decisions, including exercising veto rights over issues such as the sale of the company, additional financing, major business expenditures, etc.

VC-Difficulty level in funding for a business

Unfortunately the vast majority of businesses do not qualify for venture capital funding. VC firms are very choosy about the businesses they invest in. Of the few that are able to obtain VC funding, almost all are firms that are past the startup stage and can demonstrate a viable product or service.

Things that VCs will want to know before they invest in a company

1. VCs want you to demonstrate that there’s a big market for what you’re selling, and big bucks being spent in that market.

2. VCs want you to show how your product is different from what’s out there. What makes it unique?

3. VCs want you to prove that you have a solid management team in place.

4. VCs want you to be able to explain how you are going to use their money.

5. VCs want you to show how your company is a good fit for their investment philosophy.