Venture Capital

Gold Mines and Tar Pits

There are only two classes of investors in new and young private companies: value-added investors and all the rest. One of the keys to raising risk capital is to seek investors who will truly add value to the venture well beyond the money. Research and practice show that investors may add or detract value in a young company. Therefore, carefully screening potential investors to determine how they might fill some gaps in the founders' know-how and networks can yield significant results. Adding key management, new customers or suppliers, or referring additional investment are basic ways to add value. Venture capitalists may also provide valuable help in such tasks as negotiating original equipment manufacturer (OEM) agreements or licensing or royalty agreements, making key contacts with banks and leasing companies, finding key people to build the team, helping to revise or to craft a strategy.

Why gold mines and tar pits? 

Gold mines in the sense that venture capitalists helps startup companies by providing capital and not only capital but also ideas, plans, strategies, techniques, etc.  just to ensure that the business will survive and reach its peak. On the other hand, it is so-called tar pits in such way that venture capitalists give only investments for the business to continue its operation.

What Is Venture Capital?

The word venture suggests that this type of capital involves a degree of risks and even something of a gamble. It is in which something is risked in the hope of profit. Venture capital is a financial capital provided to early stage, high-potential, high risk, growth startup companies. Money provided by investors to startup firms and small businesses with perceived long-term growth potential. This is a very important source of funding for startups that do not have access to capital markets. It typically entails high risk for the investor, but it has the potential for above-average returns.

Classic Venture Capital Investing Process

1.  Fund conception and investing strategy. Venture capitalist will find target investment opportunities to deal on.
2. Raise capital for investment. 
3. Deal origination. The venture capital investor creates deals or investment opportunities that he would consider for investing.
4. Screening. Carry out screening of all projects on the basis of some broad criteria (size of investment, geographical location, and stage of financing.
5. Deal structuring. Venture capitalist and the venture company negotiate the terms of the deals, that is, the amount, form, and practice of the investment.
6. Post investment activities. Venture capitalist generally assumes the role of a partner and collaborator. If a financial or managerial crisis occurs, the venture capitalist may intervene, and even install a new management team.
7. Exit. Once the money is raised, the value creation process moves from generating deals to crafting and executing harvest strategies and back to raising another fund.

The Venture Capital Industry

This supplies capital and other resources to entrepreneurs in business with high growth potential in hopes of achieving a high rate of return on invested funds.