What Is Venture Capital?

February 18, 2015

When some people think of venture capital, they think about internet startups in the 90s tech boom. While this is still part of the industry, venture capital has expanded to alternative energy, biotechnology, social networking, and software.Every year, venture capitalists invest around $20 billion in about 3,700 companies. Venture capital firms need to create talented investment teams to identify new opportunities.

Venture capitalists look for favorable risk/reward situations. They seek out companies that are generally too risky for standard debt issues. These are typically highly entrepreneurial companies, and this startup culture permeates the VC firms as well. The exit strategy for venture capital is through an initial public offering (IPO) or via a private acquisition.

Source: http://www.entrepreneur.com/article/228709 Source: http://www.entrepreneur.com/article/228709

Venture capital is more challenging than it used to be. 1999 was stratospheric, with over $100 billion in deals. Money doesn’t flow quite as freely as it did back in the dot-com mania. Venture capital has transformed from an IPO focus to an acquisition approach. Exiting a profitable investment involves finding an industry leader with a sizeable balance sheet who wants to expand their business through acquisitions.

How can you get connected to this industry? The best way to join the team at a top VC firm is through networking. You will never find a VC firm hiring dozens of people simultaneously. They are small, specialized endeavors that seek out candidates for ultra niche roles in specific industries. Suppose it is a biotech venture capital firm. Do you have a background in the biotech industry? Move to the front of the line. The more focused your previous experience, the better your chances of securing that specialized role. A VC firm wants to know you are an expert because they want to rely on you.

What can you expect at a VC firm? Depending on the role you are in, you may be involved with selecting companies for the portfolio, deploying capital, overseeing a product launch, or planning for future growth. Unlike many other investors, VC firms take an active role in the management of the company, which often involves securing a seat on the Board of Directors.

Venture capital jobs are demanding and require both personal and professional commitment. Hours can be long. You should talk to other employees at the firm to make sure their vision and work culture aligns with yours. Some things on your checklist should include the following: compensation plan, past fund performance, industry focus, and size of the portfolio.

Previous post:

Next post: