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Article Series: Venture Capital
Venture Capital A To Z
The
Different Kinds of Venture Capital Firms
With the growing popularity of venture capital
comes the increase in venture capital firms. Because of the
possibility of striking gold through venture capital, there
are now more capitalists than there were decades ago. The common
impression of these firms is that they merely provide for the
finances or seed money for a start up company. Aside from providing
funds, what other things do they do?
First let us discuss the kinds of venture capital firms. The
most common ones are private independent firms. Usually operating
under a limited partnership, these firms are not subsidiaries
nor do they have affiliations with other institutions.
Banks
and other financial institutions, working through their
affiliates or subsidiaries, constitute another kind. There
is also what we call as direct investors, or those who does
the investment in behalf of industrial or non-financial corporations.
Still another group is what we call angel
investors, or wealthy
individuals who also help provide venture capital.
Venture capitalists make up these firms. There is what we
call as generalists, or those who invest in different industries,
locations, or stages in a company's life. Those who invest
in a particular industry or location only are called specialists.
Venture capitalists act as partners as they help put up the
company. Because they are more knowledgeable in the specific
field of business than the new entrepreneur, these capitalists
help provide the policies as well as strategy. More often than
not, company management has no choice but to follow them.
The first important job for the firm is the selection of business
proposals. This constitutes a large part of their job. With
the many proposals sent before them, it is hard to read and
analyze thoroughly all of them. There is therefore the need
for research as to which industries and fields are most feasible.
Once these industries have been identified, it would then be
easier for the capitalists to analyze the proposals, as they
are able to weed out the bad proposals or those which they
are not inclined on doing.
Since they have a say in the management of the company, they
also exercise management decisions such as the hiring of management
team, purchase of real estate, entering into an agreement with
other companies, and many others. They also assist in other
aspects such as product development and marketing.
Part of the firm's job is to find alternative sources of capital.
Since these firms belong to a certain network, it is not surprising
that they know other firms and capitalists who may later be
of help in terms of funding.
The capitalists are not the only sources of funds for the
firm. Some of the money may come from other institutions such
as pension funds, endowment funds, foundations, angel investors
and other corporations. That is why there may be instances
where additional funding is from other sources.
Venture capital firms are not mere financiers or investors.
As partners of the entrepreneur, they contribute in any way
possible for the success of the company. The key then is in
choosing the right firm for the type of business that you would
want to enter into.
Just like in entering into a partnership, you wouldn't want
to be partners with someone whom you don't like to work with.
# # # # # SolveYourProblem.com
: 2008
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