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Venture Capitalist

Venture Capitalist


What is a Venture Capitalist?


A venture capitalist is any individual or privately-run company who provides capital for an early-stage, high-potential, yet high-risk startup company. A venture capitalist, in essence, is an entrepreneur, who is well-funded and eager to maximize the fund’s capital in a start-up company. The ideas behind a venture capitalist firm are fairly simple—they invest in a company (after completing appropriate due-diligence) during the prospect’s infancy stages. By getting in on the ground floor, the venture capitalist has the potential to make an obscene profit; the funds used to finance the prospect’s business will exponentially increase if the startup succeeds. That being said, the majority of start-up companies fail in succeeding long-term, so the role of a venture capitalist is extremely risky.

A venture capitalist fund will make money by owning equity in the companies it finances or invests in; these companies typically possess or create a new form of technology or a business model in high technology industries, such as information technology or software. The typical venture capitalist investment occurs once the seed funding (securities offering) round is satisfied in the interest of generating a return on investment or during the beginning stages of trade sale. It is also important to understand that a venture capitalist is a fundamental form of private equity; however not all private equity is a form of venture capital.


What companies may attract a Venture Capitalist?

In addition to forms of investing, such as seed funding and angel investing, venture capital may be attractive for new companies who possess limited operating histories and are too small to raise capital in the public markets. These companies typically have not reached the point where they are able to secure a bank loan or complete a debt offering. In exchange for the high risk that a venture capitalist assumes by investing in smaller and unproven companies, a venture capitalist firm will typically assume significant control over company decisions, in addition to a considerable portion of the company’s ownership. Obviously, as a result of this control, the venture capitalist assumes a large chunk of the prospect’s future growth and value.


Venture Capitalist Further Defined:

A venture capitalist is an individual or investment firm that makes venture investments; once the investment is made, venture capitalists are expected to bring managerial, as well as technical, expertise to their investment. In essence, once financing is delivered to the prospect, the venture capitalist will assume control over the company’s operating model to maximize their expected return and the growth of the prospect.

A venture capitalist typically refers to an individual or a group of individuals who pool monies together to invest in start-ups. A venture capitalist fund, keeping with this same premise, refers to a polled investment vehicle that primarily invests monies of third-party investors in enterprises that are deemed as too risky for the standard capital markets or bank loans. A venture capital firm will typically be comprised of small, highly-specialized teams (scientists, researchers, finance experts) or those with deep industry experience. A core skill that a venture capitalist usually employs is the ability to identify market trends and novel technologies that have the potential to generate high commercial returns during the early stages of investment. As a result of the riskiness associated it with start-up or immature companies, a venture capitalist must be extremely talented and prudent with his or her finances.

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