To understand the role of a venture capitalist, it is best that we first begin by understanding the meaning behind the words ‘venture capital’. Venture capital is a type of private equity. It can also be referred to as financing provided by investors in order to support small businesses and new startups. Venture capital cannot be only limited to monetary value. Instead, it can extend to venture capitalists providing managerial and technical expertise to businesses that demonstrate promising growth and potential. Venture capitalists are usually financial institutions, banks, and other well-off investors. In this post, we are going to explain what is a venture capitalist? with all pros and cons.
Working of Venture Capital organizations / Person
For a new business startup entrepreneur, it is crucial to find relevant companies and businesses that are willing to lend money to kick-start their business. This is where venture capital firms come in. They are the ones who are on the look-out for new businesses that have good growth potential. They are even willing to take up risky investments as long as the numbers look good. Venture capital firms comprise of employees who take money from wealthy people wishing to expand their wealth. They use this money and invest it in a business that has a risky label on it. Such businesses are mostly rejected by banks, therefore, the venture capital firms willing to invest in them, usually charge a high-interest rate. This high-interest rate is usually accepted by the businesses since they can get funding that way.
Venture Capital Organizations mostly work in accordance with an investment profile. This investment profile details the type of businesses they are willing to invest in. This helps the venture capital firms in getting the hang of a specific type of industry. This equips them with the knowledge required to judge the new future startups and their potential.
When private individuals hand over a certain amount of money to venture capital firms, venture capital firms place their money in a fund. This fund is then used to distribute the money among different startup businesses. The businesses are then obliged to pay back the amount initially invested by the venture capital organizations in three to seven years with an interest rate. They can also pay back the amount when the company has become stable or it has been taken over by some other company. Occasionally, the money can also be returned in the form of stocks or shares in the company. Once, all the money has been retrieved by the venture capital firms, it is then returned to investors with an interest and a portion of the money is kept by the firm as well.
Qualities of a Venture Capitalist
In order to succeed at becoming a good venture capitalist, it is necessary that a firm or person is equipped with the following traits:
A person aspiring to become a venture capitalist must have a nose for sniffing out the best of the startup companies and rate their potential. Venture capitalists deals in a lot of proposals asking for their investment, therefore, it is essential that they are able to sort out the good eggs from a large list. They should be able to read the people and their intentions regarding the business.
Propriety Deal Flow:
A good venture capitalist is well connected to other potential entrepreneurs and to the people who are acquaintances of great entrepreneurs. This enables them to always be on the present and stay up-to-date with the on-goings in the business world. It also acts as a stepping stone for them to learn more about startup businesses and gain more experience in the field.
Another characteristic of a good venture capitalist is that they strive to make their invested companies succeed in different ways.
Impressive sales ability:
Being able to convey your point of view to the potential entrepreneur and convincing them to work with you is a quality that a good venture capitalist must possess. They should be able to deliver their thoughts as to why their firm is more equipped to suit their needs as opposed to the other one. Whether it is dealing with the investors or recruiting entrepreneurs, a good venture capitalist will be able to exercise his persuasion skills at best.
Forecasting the future:
A venture capitalist in the making must have sufficient knowledge of the working of the industry of his liking so that he is able to predict the future in advance. He should be able to know where the specific industries are heading towards in the near future and place his chances accordingly. Interpreting the research data and planning out the future in accordance with it is a skill that an aspiring venture capitalist must hone.
Ways to step into the venture capitalist journey
There are different ways in which a person can enter the venture capital industry and become a venture capitalist. Below, some ways are mentioned through which this can be achieved:
Blend in with different entrepreneurs in your crowd:
The best way to gain some hands-on experience with working in the industry is to immerse yourself in the crowd of successful and startup entrepreneurs. This will not only aid you in establishing connections with high-end people but it will also help you in learning the ropes of the managing of different businesses. Other than this, it will also link you to different bankers, accountants, and investors in the startup world. This connection will aid you to get closer to becoming a venture capitalist.
Turn into an angel investor:
Before becoming a venture capitalist, it is advised that you try to become an angel investor first. This will help you in evaluating yourself as to what extent you can identify good opportunities. It will also provide you with the extra experience required where you determine how you can add more value to the company besides investment.
Surround yourself with other venture capitalists:
Hanging out in the company of other venture capitalists will get you the right hands-on experience you need to become a venture capitalist yourself. Besides this, the chances of you being hired by a venture capitalist firm also increase significantly. Other than this, you can also make use of your skills and help the venture capitalists in expanding their network. This way you can contribute to the world of venture capitalism.
Responsibilities of a Venture Capitalist
A majority of the portion of the time of a venture capitalist is spent on separating good deals from the bad ones. They scrutinize and break down every deal submitted to them to fish out the best ones that are in line with their investment plans. Other than this, venture capitalists spend most of their time walking in and out of meeting with potential investors as well as promising entrepreneurs. Besides this, they also have the added responsibility of attending several events and functions to find new deals and interact with others belonging to the same field. This results in an increase in their awareness among the people.
It is said that the job of a venture capitalist is like a roller-coaster. It has its ups and downs. Some deals will make it while others fall through. However, it is essential, that a venture capitalist remains resilient and steadfast in his goal. After all, at the end of the day, it is about the satisfaction that a venture capitalist receives knowing they have made an impact on the lives of others. And that a certain startup in which they invested a year ago, is flourishing well. I hope that I have deeply explained the question What is a Venture Capitalist?.
Waqar Hussain is the founder of The Business Goals. He writes about entrepreneurial strategies and is an SEO consultant by profession. He is a B.Com, GDM, and an MBA from the Australian Institute of Business.
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