Everything you need to know about venture capital
This century is defined by the start-up companies that have changed the way the world works. It is because of entrepreneur’s ad their motivation to create new inventions the economy seems to progressively get better fueling a healthy sense of business competition and risk-taking.
Most start-up companies rely on investors to have a shot at actually making it to the big leagues. And most of these investors come from venture capital firms—largely found in Silicon Valley, California. In fact, that is largely why this sunshine state is often referred to as Venture Capital California.
Whether you are a young up and coming entrepreneur with big dreams of changing the world or a venture capitalist who is looking to back the next business world Rockstar, it is essential to understand the world of venture capitalism in California. So, we’ve rounded up our top tips of everything you need to know.
1. Venture capitalism is a small piece to the big puzzle
While venture capital is certainly essential for any start-up, it only has a minimal role in the beginning. In fact, most investment money kicks in when it comes to a start-up wanting to grow and enter the commercial world. For most companies, venture capitalism is the missing piece to the puzzle for making it to this stage.
2. The money only lasts a short period of time
While often venture capitalists give large sums of money to kick-start the business to the next level, the money does not last forever. There is a range of rules around the investment and it is up to the entrepreneur to ensure the company thrives during that period. The venture capitalist is only around to invest in the idea, help ensure the business is on the right track for success and then often will depart
3. The investments are made with high expectations
Venture capitalists do not simply invest money for the sake of charity. They expect massive returns on their risk to fund the unknown, often calculating agreements of at least 25% return over the period of the investment’s lifetime. So, the pressure is on for the business to do well and ensure it was a profitable exercise for all parties involved. Often, venture capitalists will have a massive portfolio of many businesses, so that they are not reliant on the success of just a few.
4. The industry matters
While in theory, it is nice to believe that venture capitalists invest primarily in people they believe in and admire, the industry that the business is in ultimately decides how appealing the opportunity is for them. To them, timing is everything—as to where the industry is at economically, wherein the life cycle the business is at and the outside factors that are predicted to influence it. While the personality of the founder matters, it often is not the main aspect of the deal being considered.
5. The deals demand a lottery mindset
Cutting a deal with a venture capitalist is not the most affordable option. In fact, the ratio of what businesses end up owing these types of investors may seem crazy in terms of logic and risk. But as is life, these brilliant entrepreneurs are more than happy to take the risk and develop a lottery mindset—where they know the risk for failure is high, but those that get lucky enough get incredibly lucky in a life-changing way.
Venture capitalism in California is a defining aspect of not only the state itself but of the entire United States of America. Without this world existing, it is fair to say that America would not be leading the world with business growth and businesses that are changing the way people live.