Common Characteristics of Venture Capital Investments

What are the common characteristics of venture capital (VC) investments? Venture capital firms are financial intermediaries that invest in companies with rapid growth potential. They generally hold investments in private funds, but add little value beyond capital. However, the difference between PE and VC investments is largely a matter of perspective. PE and VC investments differ in risk and return, and the latter is largely due to the more risk-averse nature of the former.

VCs are financial intermediaries

VCs are financial intermediaries between a company and a bank. While a bank will fund a project if it can guarantee cash flow, VCs are involved in the entire management process. They extend management support, participate in company governance, and provide various other facilities. Most venture capitalists invest in unlisted companies and make their profits after the company has become publicly traded. There are several stages to VC investment, including:

They don’t add value beyond money

Many VCs believe that venture capital adds nothing more than money. In reality, the opposite is true. VCs disagree with founders on growth, but ultimately have to deliver returns to their LPs. They measure returns as a multiple of their original investment or in percentages. This is a fundamental difference from the idea that the founders should be focusing on the customers first and foremost. That’s because VCs aren’t interested in making a company grow, but in making money from it.

They invest in firms with rapid growth potential

Venture capital is an investment fund that … READ MORE ...