Currently, there are more and more investment funds in the financial market, such as venture capital funds, ETFs, open-ended funds, closed-end funds, etc. When investing in these funds, most investors want to make a profit for themselves. This is also the main purpose of participation in the financial market. However, each person has different profit goals and risk tolerance. Investors who want good growth potential will often have to accept the high risk associated with it and vice versa.
In this article, we will introduce you to some basic information about venture capitalists.
1. Venture capitalist
Venture capitalists are investors who contribute capital to companies with high growth potential in exchange for shares, usually startups or small companies that want to expand but do not participate. Enter the stock market.
Investing in these companies is often risky and has a higher rate of failure and uncertainty about their return. However, in return, they can get a great return on their investment if investors This company is successful.
Contrary to the common misconception, “venture capital investors” usually don’t fund startups as soon as they start. Instead, they turn to companies at a stage where they are trying to commercialize their ideas.
Venture capitalists will be looking for a good management team, a large potential market, and a unique product or service with a strong competitive advantage. They also look for opportunities in industries they are familiar with and the opportunity to own a large part of the company to influence its direction.
Venture capitalists often invest long-term in businesses. They will remain with a nascent business for many years until it matures to the point where its stock shares are valued and the company is listed on the stock exchange. At that time, venture capitalists will withdraw capital and make a profit.
Famous successful venture capitalists include Jim Breyer, Peter Fenton, Peter Theil, Jeremy Levine and Chris Sacca.
In addition to directly choosing to research potential companies, venture capitalists also have another approach to managing venture capital funds.
2. Difference between a venture capitalist and an angel investor
Both angel investors and venture capitalists have in common the offer of capital for entrepreneurs or small businesses. But they have the following differences:
- Angel investors are usually wealthy people who invest their money in a budding company with high growth potential in exchange for a share of ownership. On the other hand, Venture Capitalist refers to a person or company created to provide capital by pooling investment funds from different sources to invest in new and emerging companies and entrepreneurs to help them develop and expand the market, making good profits for investors.
- Angel investors are exceptional net worth individuals who are successful entrepreneurs who invest their excess money in potential new growth businesses. In contrast, venture capitalists pool money from various sources such as insurance companies and corporations to similarly invest in fast-growing companies and seek financial support.
- Angel investors invest in a company at their initial stage, that is, in the pre-income phase. In contrast, venture capitalists invest in a company that passes its initial stage, that is, the pre-profitable stage.
- The amount invested by angel investors in businesses is relatively less than the amount invested by venture capitalists.
- When it comes to screening, angel investors perform the screening procedure based on their knowledge and experience. On the other hand, screening in the case of venture capitalists is carried out by a group of experts or by an external company, specializing in the subject.
3. Venture capital fund
Venture capital funds are investment funds that manage the money of investors seeking private equity in Startups or SMEs with strong growth potential and a broad risk profile. /highly profitable, depending on the size of the company, resources and stage of product development.
Previously, only professional investors could participate in venture capital funds. However, nowadays, this investment usually comes from wealthy investors, investment banks or any other financial institution that can participate. It exists not only in monetary form, but also in many forms, such as technical or managerial skills.
Advantages
Today, venture capital is becoming popular and essential in the financial market, particularly for small and medium-sized business startups. When they cannot access the capital market, borrow from a bank or any other debt instrument, this investment fund is the only source of capital they can exploit. In other words, Venture Capital Fund is indispensable for startups to develop and expand their business.
Defect
As the name suggests, this is generally considered a high-risk investment that exceeds bank lending or capital market standards. Since these are brand new companies, if they fail, they will lose a lot of money. However, if they are profitable enough to be listed on the stock exchange or sell shares, they will also lead to a high return on investment. Therefore, investors should rely on their own experience before participating in this investment fund.
In addition, Venture Capital investors will receive capital in the company in which they invest, so they have significant authority in the execution of business decisions. This sometimes causes apprehension for startups when applying for an investment.
In summary, venture capital funds can be considered dangerous for investors who want to profit from regular investments because of their large capital requirements and investment experience. Therefore, when approaching to become a venture capitalist, you need to do extensive research. Always remember that all types of investments involve a high level of risk.
