Who is a Venture Capitalist?
A venture capitalist (VC) is an investor in private equity who lends money to companies with strong development potential in exchange for a stake in the company. A venture capital investment could include backing startup projects or assisting small businesses that want to grow but lack access to equity markets.
Venture capital firms are organised as limited partnerships (LPs), with the partners investing in the VC fund. Investment choices are typically made by a committee. Once potential businesses have been discovered, the aggregated investor capital is committed to sponsor these companies in exchange for a significant equity interest.
Features of Venture Capitalist
- Stage Focus: VCs are like stage managers, typically entering the scene in later stages (Series A and beyond) when a company has already demonstrated traction and growth potential. Their investments fuel significant scaling efforts.
- High Investment: VCs manage pooled funds from institutions like pension funds and endowments. They invest large sums (typically $1 million to $100 million) in exchange for a substantial ownership stake (20-50%) in the company.
- Guidance & Network: Beyond capital, VCs act as strategic advisors, leveraging their experience and connections to help portfolio companies navigate complex challenges and access valuable partnerships or resources.
- Demanding Partners: VCs expect a high return on investment and actively monitor progress. They often have board representation and set clear milestones to ensure companies meet their aggressive growth targets.
Difference between Angel Investors and Venture Capitalists
Funding a startup is for all its glamour and excitement an absolutely nightmarish process. With various options for funding available, two of the prominent modes of funding that catch the attention are Angel Investors and Venture Capitalists. They are the key players who largely fund innovations in the market, yet they differ vastly in their investment style. An entrepreneur must understand the difference between both groups so that he is able to select the appropriate investor for his company and continue on the path to success.