Venture Capital Investment Process

Venture capital is regarded as “risk capital”. This can be termed as the capital that is being invested in a project where in there is a fair bit of risk involved when investing. This risk is basically involved either in case of future profit or a regular and consistent cash flow for the investment. The best example for venture capital investment process is the investment in shares or equity. In venture capital investment process, there are ample chances of high return; however, there is a huge risk when you are investing in stocks. But there is a saying – No Risk No Gain. Thus, to earn well, you will have to take some amount of risk.

Everyone, rather to say the investors, says that when you are investing somewhere it’s always better to know more and do quite a bit of research before making any decision and initiate the investment. There is no harm in researching than to repent after losing in a blind fold investment. After all it’s your hard earned money and it’s your responsibility. There are few questions that can arise when comes to venture capital investment process and its related processes. Let’stake a closer look at them through the course of this article.

It is essential that you know and understand a few important points before making your choice for a venture capital investment process. These points can be summarised as follows:

  • Venture capital investment process is very different from traditional banking and venture capital investment process is also nowhere related to the traditional banking and investment process.
  • True to its sense, venture capital investment process ideally meets the modern socio-economic needs and also brings a significant positive impact over the economy of the place.
  • The venture capital investment process drives new industries.
  • Venture capital investment process involves high risk, but at the same time it creates and brings in more wealth than any other traditional investment processes.
  • Venture capital investment process is mainly focused towards or rather it is regarded as people and pedestrian oriented business.
  • Venture capital investment process at the same time is a growth and exit oriented process. It is also an internationally oriented process too.
  • Venture capital investment process first started in the US and today it has matured in the Continental Europe. Even Asia and South America too are not far behind and readily following the venture capital investment process.
  • Venture capital investment process is a sought after business choice in which the venture capitalists invest in the entrepreneurial business, which may be small or new in nature. However, it is imperative to discern whether these businesses have the potential to grow in the near future. In case yes, venture capital investment processcan actually be a long term goal and investment.
  • Theventure capital investment processpatterns show that the venture capitalists generally prefer or mostly invest their money in the market for anywhere between 3 and 7 years. Sometimes this number also increases, if the investment is not a dead investment for the investor.
  • Theventure capital investment processfirms squeeze money for the investment from various sources. Most of the UK firms, especially the institutional investors, try extracting the fund from external sources such as the pension funds and insurance companies.

Investment Patterns and Other Features:

There is no such universally or ideally mentioned process or documentation for the venture capital investment processor pattern for the venture capitalists. The venture capital investment process varies from investor to investor and from place to place. Likely to say, if an investor is from UK or from any other continental European country, his investment pattern will be different from the investor who is prevailing in the Asia-Pacific region or in the US. So it is difficult and practically impossible to plot an ideal and scientific investment pattern for venture capital investment process. However, if you still wish to know the pattern or the process in detail, it is suggested to reach out to various investors from diverse backgrounds to get a first-hand picture. It will surely help you get an idea of venture capital investment process and plot your own graph for the same.

When an investor is investing in venture capital for the first time, or at the key stage, it is vital to make an initial evaluation of the business plan where the money is to be invested. This is the stage of venture capital investment process wherein most of the approaches to the venture capitalists are rejected. There are few aspects that the venture capitalists should look into before making a decision to invest. Those principal aspects of venture capital investment process are as follows:

  • The commercial viability of the product or the service
  • Company’s potentiality for sustained growth
  • The capability of the management to exploit this growth potential to take the company to a greater height
  • Does the management have the ability to control the growth?
  • The risk taken for the investment should be justifiable in terms of the possible risk taken
  • It is very important that the potential financial return should meet the investment criteria

If an investor can look into the above aspect with greater and utmost importance then the high risk venture capital investment processwould a healthy and joyful investment with good return for a decent period of time.

When an investor, rather a venture capitalist, is investing in the venture capital, one or more of the following share capital options can be of good choice:

  • Ordinary share: Thisis the equity share that is entitled to all income and capital
  • Preferred ordinary share: This is the equity share that has some special rights such as, they may be entitled to fixed dividend or profit share
  • Preference share: This is the non-equity share which is ranked ahead of all other classes of ordinary shares – in terms of both income and capital
  • Loan capital: This is the most risky but high return investment. Thisventure capital investment process investment is typically entitled to interest and is categorised as both secured and unsecured

Hopefully, the article imparts a fair idea regarding the venture capital investment process. This topic has a huge diversification and it is recommended to brush up the knowledge of venture capital investment process every now and then so as to keep yourself updated with the market and to get a good profitable return for your investment.