Online Test Banks
Score higher
See Online Test Banks
eLearning
Learning anything is easy
Browse Online Courses
Mobile Apps
Learning on the go
Explore Mobile Apps
Dummies Store
Shop for books and more
Start Shopping

What Do Venture Capitalists Do?

Venture capital is a financial industry in which institutions (the venture capital firms) raise money from many sources and invest that money in high-risk companies that possess paradigm-changing ideas or technology. By its nature, venture capital is a very high-risk endeavor, and a career in venture capital is intense and often short. Here are a few general things to know about venture capitalists:

  • VCs are not investing their own money in these selected companies. They invest other people’s money, which, as you can imagine, is a big responsibility. (If you were investing cash that has been entrusted to you, you would be very careful with it, too!)

  • All VCs run businesses just like you do, except that their businesses are venture capital ones. Just like all businesspeople, they have to follow through with the agreements they make with their clients — the people who have given them the money to invest. If they don’t, they lose their jobs and their careers.

  • Venture capital is the most expensive money you can find to fund your business. One reason it’s so expensive is because of the risks involved (more on that in the next item in this list).

    Another reason is that making a venture capital investment takes a lot of work. VCs sometimes spend hundreds of hours evaluating and negotiating deals. To secure venture capital, whether you need a couple million dollars or many millions of dollars, you have to give up a lot of equity and control in your business.

    Venture capital is not a lifeline, a grant, or a charitable contribution. If your company is having money trouble or is otherwise struggling, a VC wants nothing to do with you. Venture capital is not an alternative to bankruptcy! VCs look for healthy companies.

  • VCs take huge risks with their careers and reputations when they raise venture capital funds. First, the risk of losing money when investing in start-up businesses is so great that VCs have a difficult time finding the money to invest in the first place.

    Second, even if a VC does everything right, bad luck alone can result in lost investments. So although the VC doesn’t stand to personally lose the invested millions of dollars, he does stand to lose his carefully built reputation, a generous percentage of your final exit when you sell the company, and possibly his career. VCs who fail to make money for their clients don’t remain VCs for long.

  • Add a Comment
  • Print
  • Share
blog comments powered by Disqus
Advertisement

Inside Dummies.com

Dummies.com Sweepstakes

Win $500. Easy.