What is Venture Capitalists

When we start a new business huge amount of money is needed in the form of capital. Capital can be fixed capital which is required to buy fixed assets or it can be working capital that is required to fulfill day to day expenses. It is not possible for an entrepreneur to get the entire money from his internal sources. A venture capitalist is a person who invests in a business venture, providing capital for start-up or expansion. He invests money to get return from it and he is only interested in the rate of return of a company.

They are equity shareholders of a company. Limited liability and voting rights are two important features of venture capitalists. They can restrict their liability and have full control over the company. Venture capitalists provide long-term, committed share capital, to help unquoted companies grow and succeed. Venture capitalist can be an individual person or it can be a group of investors who invest in a hope of getting more money than their initial investment.

Most venture capital investments are done in a pool format, where several investors combine their investments into one large fund that invests in many different startup companies. By investing in the pool format, the investors are spreading out their risk to many different investments versus taking the chance of putting all of their money in one start up firm.

The factors which effect the decision of venture capitalist are:-

Business situation: Some VCs tend to invest in new ideas, or fledgling companies. Others prefer investing in established companies that need support to go public or grow. Others invest solely in certain industries. Others prefer operating locally while others will operate nationwide. Company expectations often vary. Some may want a quicker public sale of the company, or expect fast growth. The amount of help a VC provides can vary from one firm to the next.

The main goal of venture capitalist is to invest in firms which have chances of healthy benefits and once profits are earned they leave that business. But they have to wait for a long time to get their investment back as it takes time for an enterprise to earn profits after risk condition.

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