A venture capitalist (VC) is an investor that provides young companies with capital in exchange for equity. In other words, it is a form of private equity financing that is provided by venture capital firms or funds, to startups, early-stage, and emerging companies that have been deemed to have high growth potential or which have demonstrated high growth. This growth would be based on the number of employees they have, their annual revenue, the scale of operations, etc. Venture capitalists take on the risk of financing risky start-ups in the hopes that some of the firms they support will become successful.
One important difference, between venture capitalist and other private equity deals, is that venture capital tends to focus on emerging companies seeking substantial funds for the first time. On the other hand, private equity tends to fund larger, more established companies that are seeking an equity infusion. Also, companies looking for a chance for company founders to transfer some of their ownership stakes.
The first step for any business looking for venture capital is to submit a business plan. It doesn’t matter whether is to a venture capital firm or to an angel investor. Then, if they like the idea they perform a due diligence where they investigate all company aspects. Once they completed Due Diligence, the firm or the investor will pledge an investment of capital in exchange for equity. Finally, the investor exits the company after a period of time, advising and monitoring the business’ progress. They leave by initiating a merger, acquisition, or initial public offering (IPO).
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