Venture Capitalist

  1. Venture Capital (VC)

  2. To scale a start-up money is usually primary requirement. There are a number of alternative methods to fund growth. These include the owner or proprietor’s own capital, arranging debt finance, or seeking an equity partner, as is the case with private equity and venture capital. Venture capital firm usually finance company which has financial projection as hockey stick. VC usually do not invest in start-up or company at idea stage, rather they invest in company which is about to show hockey stick growth and for growth company require capital.
  3. VC firm specializes in certain sector and they invest in companies working on their expertise sector. A VC firm which is specializes in biotech field will not invest in companies related to media.
  4. Founders of start-up who wants control of their company should refrain from getting VC money as VC money is the most expensive money they can get in the world. Often founders get fired by board of directors or they loose control of their company within 4-5 yrs of span. Steve jobs(Apple’s founder and CEO) and Mark Zuckerberg(Facebook founder and CEO) still hold CEO position are some rare exception to this fact.
  1. VC industry take big risk for the bigger reward. Their aim is to build the company and makes profit by IPO or merger and acquisition. In start-up arena success is referred as “successful exit”. Which means invested companies acquired by some bigger firm or in some rare cases by IPO.
  2. When venture capitalists invest in a business they do so by taking certain portion of equity as preferred stock. The also take a seat on the company’s board of directors. They tend to take a 15-30%  share in the company and usually do not take day-to-day control. Rather, professional venture capitalists act as mentors and aim to provide support and advice on a range of management, sales and technical issues to assist the company to develop its full potential.
  3. The success rate of VC industry is 7-8% gives 10X return while 15% gives 3X return and 20% gives break even and rest more than 50% of companies dies or in loss.
  4. In the year 2010, around 1000 start-up got funded by VC out of 700 thousand start-up registered that year. So less than  o.15% companies get funded each year by VC industry.
  5. In USA, VC firm normally funds companies which is in its later stage and usually require more than 1-4 million USD for technology start-up and ~100 million for biotech start-up.
  6. The start-up which in its early stage statistically raises money from angel investors or by boot strapping(friends, family and fools) or bank loans.
  7. 97% of 700 thousand (7 lakh) start-up companies registered in 2010 in USA bootstrapped to raise its initial capital. So bootstrapping is a NORM and VC money is an EXCEPTION.
Why one should look for VC money?
  1. Venture capital has a number of advantages over other forms of finance, such as:
  2. Long term equity finance supporting capital base for future growth.
  3. They are business partner, sharing both the risks and rewards.
  4. The venture capitalist is able to provide practical advice and assistance to the company based on past experience with other companies which were in similar situations.
  5. The venture capitalist also has a network of contacts in many areas that can add value to the company, such as in recruiting key personnel, providing contacts in international markets, introductions to strategic partners, and if needed co-investments with other venture capital firms when additional rounds of financing are required.
  6. The venture capitalist may be capable of providing additional rounds of funding should it be required to finance growth.
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