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Venture Capitalists Definition

See Also:
Why Venture Capital
The Dilemma of Financing a Start-up Company
Angel Investor
What is a Term Sheet
Working Capital

Venture Capitalists Definition

A venture capitalist is an investor who invests in risky startup businesses. The venture capital investor provides funding to an entrepreneur who may not have access to substantial bank loans or other sources of capital. Venture capitalists also invest in small companies that are expanding. They also invest in private companies planning to go public. They will often want to participate in the decision-making of the business in which they invest.

Venture Capital Investor

The venture capital investor may be one of the following:

Consider venture capital investing to be high risk and high yield. Additionally, the recipients of venture capital loans are typically small startup companies with great growth potential.

Venture Capital Funding

Venture capital funding is a source of private equity for startups, small expanding companies, and private companies that are planning to go public.

The startup business is usually at the earliest stages of development. In addition, it may be little more than an idea and a business plan. Because the startup enterprise has no record of success, the venture capital investment is considered risky. In return for the venture capital funding, the venture capitalist typically wants high returns on the loan as well as a stake in the equity of the startup company.

If the recipient is a small expanding company or a private company planning to go public, then they may not have access to substantial funding from commercial bank loans or capital markets. In any case, the venture capitalist can be a good source of funding when the business has few or no other alternatives.

Venture Capitalist Funds

Venture capital funds are pools of capital from various investors, such as wealthy individuals or investment banks. They are managed and invested in various startups or other risky enterprises. The funds seek investment opportunities with great growth potential. Consider the venture capital fund a high risk investment. As a result, investors expect to be compensated for the high risk with high yields. If you want to remove any potential destroyers risking your investment, then download the Top 10 Destroyers of Value whitepaper.

Venture Capitalist Funds, Venture Capital Investor, venture capitalists definition

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Venture Capitalist Funds, Venture Capital Investor, venture capitalists definition

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Why Venture Capital?

See Also:
The Dilemma of Financing a Start-up Company
Angel Investor
Mezzanine Debt Financing
What is a Term Sheet
Working Capital

Why Venture Capital?

Why venture capital versus other forms of equity? For one, VC partners tend to be experienced entrepreneurs themselves who have taken a startup from inception to an exit through an IPO or private sale once or more. They can help an entrepreneur avoid common mistakes and also help position the company as it nears an exit opportunity.

They also tend to have a large number of industry contacts, which can make it easier to strike deals with suppliers and customers, as well as weather the ups and downs within a given market.

It should be noted that most VC backed startups fail, but the ones that do succeed can do so spectacularly, as a host of VC backed firms, especially in tech, have done so since 1995, such as eBay, Yahoo!, and Google.

But one must know why they believe they need to bring in a VC investor. It can be costly and business history is replete with examples of entrepreneurs who took their startup from an idea on the back of an envelope into some of the largest firms in the world without any outside equity partners.

What is Venture Capital?

Venture capital is an expensive form of financing for an entrepreneur. With most VC funds expecting compounded annual returns in excess of 25% from their investments, an entrepreneur can find themselves giving up a substantial part of their equity in the company, not to mention the loss of control and a new demanding partner to contend with. So why do it?

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why venture capital
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Venture Capital

See Also:
Every Business Has A Funding Source, Few Have A Lender
Don’t Tell Your Lender Everything
Due Diligence on Lenders
The Relationship With Your Lender
What Does A Lender Want To Know?

Venture Capital Definition

The Venture Capital definition is a funding source for start-up businesses or turnaround businesses. There is typically more risk associated with these types of investments, but high returns as well.

Venture Capital Meaning

The Venture Capital meaning is when a lender, usually a private equity group or high net worth individuals, provides financing for a new business, a business that needs cash for growth, or a company attempting to make a turnaround. Associated with these different business needs are the different stages of venture capital.

Seeding Stage

The first stage for the companies that are just starting up is known as the seeding stage.

Growth Stage

The next stage is the growth stage for those businesses that are not quite ready for an Initial Public Offering (IPO), but are in need of some financing to get them to that point. Often times venture capital firms provide the funding for these companies knowing that they are high risk. However, these lenders usually earn a high return as these companies go public. This is because the lenders receive large compensation in the form of equity in the company or a large cash settlement. If a company is in a turnaround stage this is the highest risk of venture capital.

Exit Stage

The exit strategy in this stage often go for a much higher cash option or equity stake than even the first and second stages of company development. This type of capital is often necessary because the companies in need of this financing are not large enough to obtain the capital from the markets in the quantity needed.

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venture capital, Venture Capital Definition, Venture Capital Meaning

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Access your Exit Strategy Execution Plan in SCFO Lab. This tool enables you to maximize potential value before you exit.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

venture capital, Venture Capital Definition, Venture Capital Meaning

 

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