How to get into Venture Capital
A venture capital fund is a fund for high-risk investment in start-ups or new companies, usually within a particular sector or industry, such as information technology, cleantech, fintech, healthcare, education, or biotechnology. Venture capital allows these kinds of companies or entrepreneurs who need money, to get themselves off the ground.
By their nature, new and innovative businesses are considered very ‘risky’. As a result, they seek external capital to spread the risk of failure. In a nutshell, venture capitalists invest money in financing these types of businesses, in the form of an ownership stake or in equity, in the hope that those businesses will be successful down the line.
To recapitulate, venture capitalists (VCs) are those investors who are willing to support a young company or a start-up venture. Why would they do this? Because the potential return on investment (ROI) can be worth their while if the company does well.
How can Venture Capital help entrepreneurs?
Many entrepreneurs who come up with a new idea for a business very often do not have many places to turn to as far as financing is concerned. Big banks are often very hesitant to finance new companies, firms or start-ups, as it is a large risk for them, plus they are often also constrained by certain rules and laws which may actually make it even more difficult. In fact, many start-up owners who need seed money, are frequently forced to turn to friends or family members for monetary help to raise funds for their initial capital. Venture capital can be a solution for companies such as these.
A good chunk of money invested by venture capitalists often goes into building the infrastructure required to grow the business (such as manufacturing and marketing) and the balance sheet (fixed assets and working capital).
The first thing that a venture capitalist will check before investing in a business, firm or start-up, is how unique the service or product it is offering is. The second thing is how much that product or service will ‘sell’ in the market. Many venture capitalists tend to invest in companies or firms that operate in industries which they are familiar with.
The percentage of a company that venture capitalists take varies, but they will typically take between 25% and 50% of a new company’s ownership.
Venture capital investment tends to be a very profitable type; however, there is also the danger of losing your money, as it is also one of the most illiquid kinds of investment (it deals with assets that are not easily converted into cash).
Facebook, Google, Uber, and Skype all received venture capital backing in their early years. And we know how that went! However, by experience, not all such stories have a happy ending.
As a guideline, for every few start-ups, you will have a large percentage that will fail completely (so you will lose all your money), some will lose some money or just return your original investment, and a few will deliver a good return.
How to apply for Venture Capital Funding
How does a firm get venture capital investment? Let’s have a quick ‘Venture Capital 101’ or ‘Venture Capital for Dummies’, as it were. A company, firm or start-up looking for venture capital must first submit a business plan, either to a venture capital firm or an ‘angel investor’ (a high-net-worth individual who provides financial backing for small start-ups or entrepreneurs). If interested in the proposal, the investor will ask for a ‘due diligence report’, which will investigate the business and its history, among other things. After that, if the findings are to their liking, they will decide to invest.
The aim of venture capitalism is for the investor to put money into a new or innovative business until it achieves a sufficient size and ‘reputation’. In fact, after some years, the investor usually exits the company, by initiating a merger, being purchased by a larger corporation, or being listed on the Stock Exchange via an initial public offering (IPO).
Venture Capitalists vs Angel Investors
Venture capitalists and angel investors are two common sources of funding. They both target innovative start-up firms, mainly in the technology or science fields, but they are not the same.
|Venture Capitalists||Angel Investors|
|Individuals, companies, or firms that invest pooled funds from different investors in emerging businesses.||High net worth individuals who invest their own money in start-up businesses or young companies.|
|Tend to prefer more well-established emerging rather than early-stage companies and support them through their growth phase before exiting at IPO, acquisition, or merger stage.||Usually back early-stage businesses engaging in market research and technical development.|
|A venture capitalist is highly involved in making decisions.||An angel investor does not usually participate extensively in the management of the business.|
How to be a Venture Capitalist
A typical day in the life of a venture capitalist would see you starting your day by perusing one or two of the many respected business newspapers or trade journals. During the rest of the day, a lot of the time is usually filled with meetings. These meetings could be with colleagues or partners (people involved in your own venture capital firm) or entrepreneurs who are looking for a capital for their start-up, company, or new business ventures.
Towards the end of the day, the venture capitalist will generally ‘wind-down’ by reading any due diligence reports on firms that they are interested in investing in in the future, ready for the meeting with his or her partners the next day.
How to get into Venture Capital Firms
How to be a venture capitalist? The two most common career paths to becoming a venture capitalist are either by being a genuine entrepreneur or a highly skilled investment banker; however, there are other options such as coming from the financial advisory sphere, or even being an academic. Many venture capitalists also have a Master of Business Administration (MBA) degree, although this is not a pre-requisite. You can become a venture capitalist as long as you have the necessary skills, drive and knowledge.
Venture capitalism is very much seen as a competitive industry and becoming a venture capitalist is known to be a rather difficult and long process – and a stressful one at times.
How to become an associate at a Venture Capital Fund
Working at a venture capital firm can help you build a good track record which will serve you well in the future. However, entry level jobs at venture capital firms can vary enormously based on various criteria such as sector and fund size. To become an associate at a venture capital fund, you would typically need a college degree and a few years’ experience working in the finance industry. After a long time working there – we’re talking years, not months – you might become a partner or even start your own venture capital fund. How much money you make depends on several factors, including the firm you are employed with, your position and experience, and the types of investments you make.
One good idea if you are serious about becoming a venture capitalist, is to seek out a mentor with a great deal of experience who can show you the ropes and help you pick winning start-ups, for instance. The most important task that a venture capitalist has, is to find the right start-up to invest in, so having the ear, help, and time of someone who has done this before can be invaluable.
What are Decentralised Autonomous Ventures?
Decentralized autonomous organisations (DAOs) are blockchain-based organisations collectively owned and operated by their members. They rely on blockchain technology and smart contracts (collections of code that run on the blockchain – a decentralised ledger that manages and records digital transactions).
You could say that DAOs are crypto’s answer to venture funds. Venture DAOs normally tend to invest in digital assets. They tend to have a more diverse and experienced assortment of members than traditional venture funds. In this way, new companies or start-ups can access funding from top investors, while investors get access to the best projects in the DeFi and blockchain industry, as well diversify their portfolio.
Because there is no formal board of directors, management or executives who have the power to make changes, DAO investors have considerably more transparency and control over the organisation and management than traditional corporations or organisation. This means that there is no hierarchical structure. Moreover, since the rules of each venture DAO are coded in smart contracts, they cannot be changed unless voted upon by the DAO’s stakeholders.
What is Oryzon?
Venture capital fund Oryzon Fund is providing a way of investing in high tech start-ups with very good possibility of growth. Using blockchain technology, the fund issues tokens (called Oryzen Tokens or ORX) that represent the investors’ shares in the fund. The value of each Token is reflective of the Net Asset Value (NAV) of the fund. It then manages the fund to increase the potential of the investors’ returns while reducing the risks.