What is Venture Capital Fund?
Having your own business is one of the dreams and goal of the average
person. Most of us would rather be their own boss than become someone
else's employee. Unfortunately having your own business is not easy.
Money is difficult to earn and more difficult to find, well unless you
are already well off.
Starting your own business may take a lot of thinking, guts and money.
Fortunately new entrepreneurs have other options in finding funds for
their business. A venture capital fund is a private equity from outside
People who provide these funds are called venture capitalists. These are
a group of wealthy investors, financial institutions and investment banks
that can gather investments. They invest in new businesses that are still
starting in the industry. In return they get a portion of the equity and
have a say in the company's decisions.
We often hear business ventures from rich people. Most investors who have
enough money will embark on a limited partnership with a new company.
This may sound good for aspiring entrepreneurs but it is not easy.
Venture capitalists have now become more conscious and careful since the
dotcom bust. They may not mind taking the risk but they have become more
selective on where to invest their money.
Venture capitalists are usually executives from a firm. These investment
professionals are referred to as limited partners. These are a group of
people who have access to large sums of money for capital. These funds
usually come from private and state pension funds, foundations, financial
endowments, investment companies and other institutions.
Investors are usually grouped according to their interest. Most venture
capitalists invest on starting companies. These companies are usually
high-technology businesses such as electronics, computers, research and
development. These funds usually last for ten years. The general partners
or VCs receive a 2% management fee every year and require 20% of the net
profits. They invest in more than one starting company for more returns
in the long run.
Venture capitalists are very selective and most of the time has strict
requirements. Apart from that they also have a say in the company's
decisions which may not be good for the company. Venture capitalists are
known to invest a lot of money in a short amount of time.
They may invest in advertising your company for magazines but are not
exactly suited for your type of customers. Companies end up spending
money at a faster rate before they can learn how to do it and earn
positive returns in the process.
For other entrepreneurs who have a hard time getting their business plans
approved they may turn to angel investors. Angel investors are
individuals who also have access to large amount of capital and are
willing to invest money on highly speculative start up companies. These
businesses usually don't have a solid proof for their technology or have
a great potential for its product or services at the start.
If you really need a venture capitalist fund make sure that you will pick
a general partner that will work with you not just for the money. Venture
capitalists can kick out the founders out of the way and bring in their
trained CEOs. At the end of the day it is still a business that you can
either work for or have it taken from you.