Venture Capital
by Eli Levi, Editor in Chief
As the world continues to produce new technologies and innovations, companies require capital for research, development, and finally production. Companies have a constant need for funding, and there are many funds that supply the capital such as banks, private equity, and venture capital (VC).
VC firms tend to invest in technology-driven startups but are looking for opportunities everywhere. There are many different stages in a company’s growth and VC firms are there to invest at all different stages. Some VC firms invest at a specific stage that they specialize in, while some invest across all stages.
Most VCs have the same basic strategy/goal. This is because many startups fail, and even those that succeed do not grow to the point that the VC fund would have a good return on their investment because of a moderately successful company. Therefore, the VC firm’s strategy/goal is centered on being invested in the next unicorns. As long as the VC firm has one great company in its portfolio, it more than makes up for all of the losses/small gains from the other companies. VC firms hope to supply capital at the developmental stages of the company’s growth so if the company booms, their investments will grow exponentially.
Other than supplying the capital to expand, VCs connect founders with the professionals they need to fill out their company. Whether that is marketing, HR, compliance, product management, etc. founders always need help somewhere as they cannot do everything themselves.
Another aspect of this is making sure the company is not exposed from a legal standpoint. Many startups are small and do not require legal, compliance, or HR teams. As the company scales many times VCs step in to help the company craft a proper governance structure.
One final point about venture capital is that they have complicated organizational structures for the company itself. One specific piece of their structure is easier to understand so I will outline it here. Venture capital firms raise a series of successive funds (fund 1, fund 2, etc.) and each fund has its own return. Therefore, even if you invested in a great firm they might have a bad fund or two or vice versa. Some funds are raised to invest additional capital in the companies they already invested in.
To me, the core of venture capital is helping to build companies and that is something I find exciting and is a process I want to be a part of.
