Venture investors help companies in the early stages of their creation. They support startups financially, take on various issues and introduce them to influential people. The projects of venture capitalists are carefully selected depending on the direction, benefits and speed of their acquisition.
What venture capital projects and their success depend on
There are two types of investors – business angels and venture funds. The first category is individuals who have large capital and are willing to invest it in new projects. They are interested in young promising startups at early stages of their development. Business angels provide comprehensive assistance. In addition to finance, they advise on how to run a business, get to know the right people and share their wealth of experience.
According to research conducted by the Global Entrepreneurship Monitor, business angels invest several times more in new projects than venture funds. Individuals have invested $364 billion in 99.96% of companies – 33,655,116 start-ups.
The main advantage of business angels is that they are ready to invest in those segments that are not interesting to other investors. They are not afraid of high-risk projects and assistance to high-tech firms. The growth potential is important for business angels, and their investment approach is different from that of venture funds. It’s much easier and payments are made with less interest.
Venture capital firms or venture capital funds use two approaches to benefit from the money invested. They may require a certain annual commission to participate in the formation of the company. Usually it is 2.5% of the initial investment in a project. The second option is for the fund to generate net income by selling shares.
Statistics show that out of 1 million startups only six remain on the market and are successful. Less than 20% of the companies invested by venture funds are liquid. But at the same time 10% of projects achieve good results and compensate for losses from investments in unsuccessful business ideas.
It is important for a startup to choose the right type of investor. It is necessary to pay attention to whether this fund or a private businessman has experience in a particular segment, whether he has already worked with similar projects. It is necessary to stipulate the terms of cooperation and the role of the investor in the life of the company.
Another development option for startups is partnership with large corporations. In this case, interaction is beneficial for both parties. Successful companies will help a new project to get back on its feet, adjust its strategy and improve the efficiency of actions. Corporations get an opportunity to expand their influence in the market, enter new market segments and be the first to try out innovative products that give them an advantage over competitors.
