Venture capital is a type of private equity funding that is typically provided by venture capital funds or private angel networks to start-ups, early-stage, and already established companies who have been deemed to have exceptionally high prospect for profit or that have proven very high revenue potential. Typically, venture capital funds are made by wealthy individual investors. These are individuals who have an exceptional vision for a business but do not have the resources to successfully execute it on a commercial level. Typically, they have a history of success in business and want to continue to support start-ups in order to ensure their long term success as well. They also understand the need for an environment in which innovative ideas can be tested and executed. Venture capital firms provide a number of options for funding companies in their range of offerings.
The scope of venture capital funding generally includes angel investor networks, venture capitalists, venture capital funds, and pension funds. Venture capitalists typically participate in a number of different types of financing programs. Angel investors typically provide seed money for companies that can demonstrate an expected high return on investment as well as a significant risk/reward ratio. Venture capitalists use a variety of tools to assess the creditworthiness of start-ups and select those that meet our standard investment criteria.
Pension funds are typically invested in a variety of new companies throughout the year. As pension fund investments are considered to be risk-free, there is little volatility in returns and investors can diversify their portfolio. On the other hand, venture capitalists typically participate in a more aggressive portfolio and typically do not have access to pension fund capital. Because of this, venture capital firms seek to partner with senior venture capitalists as well as start-up companies. In turn, these companies provide early stage venture capital investors with equity capital as well as other resources such as patents and licenses to important technologies.
A third type of investor is wealthy individual angels. These are typically wealthy individuals who have made large personal investments in startup companies. They are typically successful entrepreneurs with years of experience and are able to successfully fund and /or participate in several companies at a time. Typically, wealthy individual angel investors will only invest in high quality companies that they believe have the potential to be large long term winners.
Many venture capitalists are private individuals and are considered to be the highest paid professional investors in the world. The most well-known firms in the venture capital industry are Andreessen Horowitz, Greed Capital, Fidelity Investments, Draper Associates, and John Fisher. There are a number of private venture capital firms, including Sequoia Capital, angels groups, and coworking spaces where multiple private investors invest on a regular basis. There are also national investment firms such as Merrill Lynch and Goldman Sachs that focus on the larger financial investment and banking industries.
In order to receive the maximum benefits from your investment in a startup company, it is very important to find an investor who is not only motivated by a desire to see your business succeed but also one who has the means to do so. You can help to ensure this by asking any investor what their investment strategies are. If you don’t ask, you may never know! Because the venture capital industry is highly competitive, most entrepreneurs are also looking for someone who is willing to take a chance and can provide the capital when it is needed.