What is a Venture Capital Fund? – Having your own business is one of the dreams and goals of the average person. Most of us would rather be their own boss than become someone else’s employee. Unfortunately having your own business is not easy. Money is difficult to earn and more difficult to find.
Starting your own business may take a lot of thinking, guts and money. Fortunately new entrepreneurs have other options in finding funds for their business. A venture capital fund consists of private equity from outside investors.
People who provide these funds are called venture capitalists. These are a group of wealthy investors, financial institutions and investment banks that can gather money. They invest in new businesses that are still getting started. In return they get a portion of the equity and have a say in the company’s decisions.
We often hear about business ventures from rich people. Many investors who have enough money will embark in a limited partnership with a new company. This may sound good for aspiring entrepreneurs but it is not easy. Venture capitalists have now become more conscious and careful since the dot com bust. They may not mind taking the risk but they have become more selective on where to invest their money.
Venture capitalists are usually executives from a firm. These investment professionals are referred to as limited partners. These are a group of people who have access to large sums of money for investment. Their funds usually come from private and state pension funds, foundations, financial endowments, investment companies and other institutions.
Investors are usually grouped according to their interest. Most venture capitalists invest in start up companies. These companies are usually high-technology businesses such as electronics, computers, research and development. Venture Capital funds usually last for ten years. The general partners or VCs receive a 2% management fee every year and require 20% of the net profits. They invest in more than one startup company for more returns in the long run.
Venture capitalists are very selective and most of the time have strict requirements. Apart from that they also have a say in the company’s decisions which may not be good for the company. Venture capitalists are known to invest a lot of money in a short period of time.
They may invest by advertising your company in magazines that are not well-suited for your type of customers. Companies end up spending money at a faster rate before they learn how to conduct their businesses, but eventually earn positive returns after the learning process.
For other entrepreneurs who have a hard time getting their business plans approved, there may be hope with angel investors. Angel investors are individuals who also have access to large amounts of capital and are willing to invest money on highly speculative start up companies. These businesses usually don’t have a solid proof for their technology or show great promise for their product(s) or services at the start.
If you really need a venture capital fund make sure that you pick a general partner that will work with you not just for the money. Venture capitalists have been known to kick the founders out and bring in their own trained CEOs.