Value Network Principles of Venture Capital

My company is a venture capital firm focused on early stage fund that invests in female led consumer internet and mobile startups. We focus on investing in startups that have with a female founder or who are active in female dominant marketplaces. We target early stage investments (seed and pre-seed) in the consumer lifestyle sector across travel, health, entertainment, consumer products, dating, fashion and education.

A lot of people are wondering what is venture capital, venture capital is financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks and any other financial institutions. However, it does not always take just a monetary form; it can be provided in the form of technical or managerial expertise. Venture capital, especially those focused on early stage investment, are really risky. Because for new companies, they only have a limited operating history or just an idea/demo. The general partners in the venture capital have to have good eyes to distinguish potential successful startups.

In a venture capital deal, large ownership chunks of a company are created and sold to a few investors through independent limited partnerships that are established by venture capital firms. During my first week of internship, I cannot distinguish between venture capital and private equity. One important difference between venture capital and other private equity deals, however, is that venture capital tends to focus on emerging companies seeking substantial funds for the first time, while private equity tends to fund larger, more established companies that are seeking an equity infusion or a chance for company founders to transfer some of their ownership stake. For small business, or for-up-and-coming businesses in emerging industries, venture capital is generally provided by high net worth individuals, also known as angel investors. The CEO of my company is an angel investor for 6 years before he became general partner and raising money from limited partners. Angel investors are typically a diverse group of individuals who have amassed their wealth through a variety of sources. However, they tend to be entrepreneurs themselves, or executives recently retired from the business empires they’ve built. Self-made investors providing venture capital typically share several key characteristics. They majority look to invest in companies that are well-managed, have a fully-developed business plan and are poised for substantial growth. These investors are also likely to offer funding to ventures that are involved in the same or similar industries or business sectors with which they are familiar.

Good eyes are extremely important for people worked in venture capital, venture capitalists have to invest in good industries in order to be success, that is, industries that are more competitively forgiving than the market as a whole. Picking the wrong industry or betting on a technology risk in an unproven market segment is something VCs avoid. Exceptions to this rule tend to involve “concept” stocks, those that hold great promise but that take an extremely long time to succeed. The venture capitalist’s challenge is to identify entrepreneurs who can advance a key technology to a certain stage at which point the company can be taken public or sold to a major corporation.

Ultimately, the entrepreneur needs to show the venture capitalist that his team and idea fit into the VC’s current focus and that his equity participation and management skills will make the VC’s job easier and the returns higher. When the entrepreneur understands the needs of the funding source and sets expectations properly, both the VC and entrepreneur can get profit.