Which investor to look for: a venture capitalist or an angel investor? While the two options are similar in many ways, they differ in a few key areas. Thus, how to find venture capitalists? Take a look at the article below.
The Most Important Information About the Venture Capitalists
The easiest way to get into this industry is to raise a small amount of money and start writing checks. We would advise putting them in a joint legal structure, even if the capital is only $50,000. Try yourself in the role of a business angel – start with checks for $ 5 thousand. This will provide protection from liability and help build your company’s brand.
Venture capitalists tend to be in funds. Investment firms are staffed with analysts, lawyers, and managers to ensure transactions are thoroughly reviewed. Raising funding from VC is a lengthy process. It is important for an entrepreneur to do research to determine which funds specialize in deals in your industry best suit the needs of a startup. Most venture capital funds have a narrow specialization, so it is important to choose the right fund and not spam non-core organizations with irrelevant offers.
Yet we know next to nothing about how venture capitalists operate and how they add value. Everyone has heard that they match an entrepreneur with an idea with an investor with money but no ideas, thus satisfying the essential needs of both markets. Sometimes companies that receive investments from VCs change an entire industry and get on the front pages of newspapers. However, venture capitalists themselves are in no hurry to come to the fore.
Venture capital investments are risky investments in young companies that are looking for a scalable business model. In clear words: investors are investing in a completely new business that claims to take over the world. Most likely, the business will burn out along with the investment. But if a miracle happens and the business doesn’t fail, then investors will become co-owners of the new Google, Amazon, or Facebook.
The Best Way to Find VC for Business Purposes
Corporate attorneys, successful entrepreneurs, and business brokers can be good sources of information when it comes to finding venture capital in your area. Check with your peers, popular social media, and business associates in your area for the names and contact information of venture capital firms near you.
First, you need to figure out why you want to invest. If you are investing to earn money, you must understand that the risks here are very high. If you’re investing for pleasure, that’s a different story. Our advice:
- look at your liquid capital, subtract from it what you spend on living, and invest 15% of the remaining amount in venture capital investments;
- your expected return should be at least 15% per annum because you can earn about the same on less risky instruments on an organized exchange;
- do not compare this return with the business you manage – for venture capital projects, your return on weighted risk is, in any case, the maximum.
The main difference between such investments and conventional ones lies in the potential of the project. If a risky venture finds the right business model to scale, it can become a major player in the market, and investors can expect returns that are sometimes thousands of times their investment. In the case of ordinary investments, the investor expects a stable, but not super-high income.