venture capitalists

Young entrepreneurs often face financing problems on the way to success. Venture capitalists help new promising startups to showcase their product and establish themselves on the market. They are indispensable when other investors do not want to invest in a risky project.

Venture capitalists: the essence of the business

Investors who are not familiar with all the nuances of the product offered by the startup owners are not in a hurry to risk large sums. As a result, the project does not have enough capital to reach its full potential.
Venture capitalists come to the rescue, who take on the role of intermediary between the owners of the startup and the investors. They create favorable conditions and invest in the development of new companies, which have good potential and are interesting for the market.
The sphere of venture capitalists’ activity includes:

  • investment support for young companies;
  • a comprehensive evaluation of the project in terms of its profitability and marketability;
  • investment process organization;
  • management consultancy, administrative consultancy, startup staffing;
  • organizational assistance in product introduction, market entry.

Most venture funds are based on the principle of limited liability partnership. External investors do not control its activities, they transfer funds and receive interest from firms.
The standard cooperation period is 10 years and can be extended for another 3 years. After this period is over, venture capitalists create a new fund, where they actively attract money.
The external investor receives income from investments when the company reaches a certain level of development.

For their services venture capitalists take 2.5% of the assets of companies that are under their management and 20% of the fund’s profit. But this happens after the external investors return the invested amount.
The activities of venture capitalists are stipulated in the agreement, as well as restrictions:

  • they have no right to use credit to increase the fund’s capitalization.;
  • you may not invest your own money in the same companies that the fund invests in.;
  • the maximum investment amount in one startup is clearly stipulated;
  • it is forbidden to create a new fund while the old one is still in force..

An important point of venture financing is to agree on all issues related to the value of the company. Negotiations are held between the owners of the startup and the investor. Each party offers its own amount and in the course of the discussion participants come to the result that will satisfy everyone. Most often the final figure is closer to the one proposed by the investor. The role is played by the investor’s professionalism and experience, the ability to make strong arguments and knowledge of the market.