How to Start a Venture Capital Firm

Venture capital firms have been recognized as a business of extremities. This is because those who have established such business either succeed or failed. It is a very risky business to venture.

This is the very reason why only those who loves taking chances and brave enough to take such risk are only involved in this business. If you want to be one of those people, then you should familiarize yourself with the business.

Defining a Venture Capital Firm

A venture capital firm is generally an investment firm. It normally invests on newly established businesses which have very high potentials to have successful ends. It gives money to these new companies. The money used to invest is referred to as venture capital. The new company will then use the venture capital to expand its resources in order for them to generate profit. Moreover, the investments by the venture capital firm are given through cash in return for shares in the invested company. Therefore, most of theses venture capital firm are part owners of the newly built company.

On the other hand, there is also the so called ‘venture capital fund’. Simply put, this is often the partnership of the investment company and the new company. There are also two kinds of venture capital firm that is essential for you to know. The first kind is the ‘limited partner’ type. Limited partner is either a person or an organization who participate in a venture capital fund solely for financial gain. The second type is called a general partner is a venture capitalist who handles the fund and manages an investment. If you are planning to establish a venture capital firm with other friends, then you will be on the limited partner type.

A venture capital firm profits through a mixture of management fee and carried interest. The management fee is the yearly payment of the investors to the fund’s manager for the private equity firm’s investment operation. On the other hand, carried interest is the sharing of the fund’s profit which is typically 20%. This is given to the management company as a performance incentive. The remaining 80% will be given to the investors. If however, the company being invested by a venture capital firm fails, they can opt to buy out their stock shares.

Starting a Venture Capital Firm

If you have enough money to finance a venture capital firm, then you have to familiarize yourself with its operations. The given information above will not be enough for you to be fully familiarized with the business. You will have to do a lot of researching for you to be aware of each nooks and crannies of the venture capital system. Consult also other businessmen; seek for their advice on the things that must be done first before entering a risky business. If you are already armed with the proper knowledge about the venture capital system, then organize your firm. Hire your personnel. And remember, there are two kinds for you to choose, whether to be a limited partner or a general partner. Mull this over. Make sure that what maybe your final decision will benefit you a lot. Think of the pros and cons of the two kinds of venture capital business. Once you have decided then start scouting for possible business to invest your money. Be certain on what you invest in. Look at the growth potential of a particular business. This is where your instinct as a business minded person should work. However, do not rely solely on your instinct alone. It can sometimes be wrong for all you know. Conduct a background check on the business establishment that you want to invest your money. This wafy, you will know if that particular business is worth your time and money.


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