21 Mar How Venture Capital Helps to Raise the Funds
What is Venture Capital and who is Venture Capitalist?
Venture Capital is a form of private equity. This is focused to raise the funds of the start-up companies at an early stage. The Venture capital fund is the best equity investment vehicle that is based on the size, asset and stage of the company. It is provided to the business ideas that have a high potential for growth. This is provided by the investors known as Venture Capitalists. These investors are individual, firms or groups. As investing in start-up business carried high-level risk, the investors for venture capitalists look for a high return. This allows capitalists to take part in the business strategies, direct the operation and guide the investment. This is the reason that top investors trust capitalists to invest in start-ups.
How Venture Capitalists raise funds?
Do you know how Venture Capitalists success in getting enough money to invest? This is their skill and knowledge on where to invest at the initial stage of their firm. They know how to find the great start-ups and invest in them. The VC has to convince huge investors to take part in the fund raising for a new company. For this, they can be a limited partner or hold VC’s new fund. This entire process of building the trust of investors include, pick the right investor, convince and provide him with the right security. The VC mostly raise money from educational endowments, insurance companies, pension funds and wealthy individuals. In this process, VC promise to pay a certain amount of capital when called upon.
How VC help to raise funds for start-up businesses?
For the new start-up companies, Venture capital is the best option. This is a pool of funds that are managed by a corporation, individual or a firm. As the business grows, there is an increased need for the funds. So, people who operate as a capitalist, they need to possess deep knowledge of venture capital.
VCs are specialised in investing: The early stage of any company is very crucial. The VCs know when to invest and how to invest in any company. They are experts who invest as a seed, growth, early and large stages. In most of the start-ups, an early and extra push is required to grow and expand. So when any company find the way, VC provide them the extra support of funds.
Invest in specific theme and guide investment of start-ups: VC’s has a set theme to invest. So they invest in only the specific companies their thesis. Adding to this, VC also invest across the verticals but after careful research. They also invest in both business and consumer companies. So it is easy for the companies to get the required venture capital easily.
Invest money in high return start-ups: As VC raise funds from multiple sources, they invest money on behalf of investors. This money mostly comes from pension funds and endowment investors. So special care is required to provide a high return as high risk is involved. So special care is taken at the initial investment stage of providing funds to new business.
VCs monitor, advice and support their portfolio companies: As the new firms have high-risk, the VC take an active part at the initial stage. VC get a voice in managing the companies’ portfolio, framing strategies, support service and other activities. Some VC also support and provide services like sales development, recruiting, marketing strategy and market research. So for this, the VCs are called know as the value added VCs. In this model, VCs are free to suggest, support and grow the portfolio of the companies in which they invest.
Why should new start-ups raise money from VC?
Start-up companies use VC fund to grow the business. This includes overall operational expenses, growth and other needs of the fund. At the initial stage, start-ups always occur loss. This is due to the high operational cost and less income. In the long run, the company sustains and eventually make a profit. In simple words, the venture capital provides the runway to the start-ups and they can easily go public for funds. So these companies make enough profit in long-term and maintain the required funds. So it is the best idea to raise initial capital in the form of venture capital.
Finally, you may be thinking how the VC make money. This is a simple process where VC charge management fees and the carried interest. Once any firm exits the partnership, the profit is divided into the portion of 20:80. Here VC gets 20 percent and firm get 80 percent of the profit. On the other hand, understanding the concept of Venture capital is not must for the start-ups. So VC finding is always the good option at the initial stage of any company. So never hesitate to raise find from Venture Capitalist.