Despite the fact that often is misinterpreted by the big bulls in the market, Venture Capital is a typical funding form. This form of funding is known to create various intimidations for both the concurrent and veteran entrepreneurs. Yet the investment form is able to make its way in the market. Its popularity has been congregated among those new business enthusiasts whose plea for financing was negated by traditional lenders.
Entrepreneurs who are after scaling within a shorter space of time, and seek an honorable exit.
What is Venture Capital?
Venture Capital relates to that type of investment where affluent persons or companies give out their funds to a VC Firm. Such a contribution helps to manage their investment portfolio for their convenience. Under certain circumstances, they may also be required to invest in high-risk start-ups too.
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However, the investment managers from such capital portfolios make the investors aware of the location where their investments have been put in.
There are instances where the VC firms target a specific amount or a molded sector for making an investment.
The funds thus piped in will automatically finance different businesses. The individual investments will at the time of launching the fund.
The investors in Venture Capital come from larger financial institutions. Among these, you will have the Pension Funds, the Financial Firms, Insurance Companies, and Endowment distributors.
Companies of firms like these put a percentage of their earning into high-risk investments. Investment in Venture Capital normally yields a return of 25 to 35 percent.
Again, since investments of these types conform to a very small part of such institutional investors’ portfolio, the latitude is experienced by such people.
Companies going to invest in such a portfolio put more stress on the firm’s track record; confidence in the partners also plays a major role in materializing such a contract.
Process of Work with Venture Capital:
The investors in Venture Capital are called Limited Partners. These Limited Partners work on a certain range of investments. These include corporate pension funds, endowments, wealthy families, sovereign wealth funds, and funds of funds.
The first process of investment with Venture Capital is to identify the type of VC going to be invested within vertical. Several tools are used for such identification of which the investor is free to choose the most radical one for him/her.
Once the investor gets the list of targets, his next obligation will be to observe the commonest ones to his type and close too. These people are in a position to make an introduction.
The best introduction is obtained from investors who are ready to offer better returns to the Venture Capital in the pipeline.
VC firms use these introductions as a stamp of approval on the mutual relationship between the enthusiast and the investors. Entrepreneurs incline to make the best introductions to have more chances of having funded.
In the second step, if the introductory partners express interest, the investor gets a call. Quick communication between the lending and borrowing parties can be set as soon as these two meet in person.
As the investor sets communication with the partner after receiving the first call, the entrepreneur will be asked to send a presentation ASAP, provided there is interest on his part.
At the beginning of the third phase, the investing partner will make a review of the presentation. Upon satisfying such an appearance, the investor may ask the entrepreneur to come again for a mutual conversation.
In this portion, the investing partner will ask some questions to the business enthusiast. It becomes the responsibility of the entrepreneur to satisfy the investor with his answer. Upon such an outcome, the proposed lender may be invited to offer the same presentation to the other partners in the VC cubicle.
Meeting with the other partners in the last step of being authorized with the capital. The entire batch of the decision-making partners will be present at the room where the presentation will be made.
The entrepreneur expects high note of appraisal from the partners who have earlier was satisfied with the presentation.
The entrepreneur will receive a term sheet when he is able to satisfy the queries of the partners in the common meeting room.
The term sheet incorporates a promise for financing against the presentation. It does not constitute any assurance of getting the capital. Therefore, any agreement made on the term sheet has no binding on any of the parties.
Due diligence process with Venture Capital begins after the stipulations with term sheet are over. The process of such due diligence is normally getting over in two or three months. Subject to completion of all the verifications, the entrepreneur is entitled to receive the funds in that period.
Proper analysis of the nature of investment in Venture Capital reveals the fact that these funds are utilized at the adolescent phase of the borrowing company. Therefore, the eventual situation becomes a win-win for the parties involved.