What is a venture capitalist? Maybe you’ve heard some guy in a bar in a nice suit saying thats what he does for work and you have no idea what that even means. Well, a venture capitalist is a person or a group of people that invest capital or money into a company in order to help grow it to the next level. In exchange, they usually receive equity in the company.
When venture capitalist groups are investing in these companies that are usually startups it’s because they think they have a chance at higher rewards than other typical investments. In the same token investing in a startup can often be riskier than other opportunities. For example, the stock market might be a little bit safer of an investment but the rewards are slim as well. There are many reasons not to invest in the stock market so VC’s look for something else.
What is a venture capitalist fund?
Nowadays most venture capitalists are not individual people but rather VC funds. A VC fund is a group of people that have pooled their money to be able to go after larger investment opportunities than they would be able to on their own. The fund is formed as LP or limited partnership so all the investors have a say in what investment opportunities. Usually, a venture capitalist fund forms a committee to make decisions on which companies to go after.
The benefits of having a VC fund over going at it alone are numerous. When you belong to a fund you can go after bigger pieces of companies because you have more money to spend. In exchange, your fun can receive more equity. Chances are you fellow fund mates are well educated in business as well. Most have probably worked with startups before and offer a ton of valuable knowledge that you wouldn’t have otherwise. Using their knowledge can help you make more informed decisions. When pitching to a fund startups might also do a more thorough pitch than they would to just you on your own. They might give more financial information and projections because they take the fund more seriously.
How to become a venture capitalist
Get hands-on experience
As a VC you will be working with a lot of entrepreneurs and startups. The best way to learn what makes a business successful and the intricate workings of new business is to have one of your own. Starting your own business will give you more inside into what makes an investment worth the money or not. Being able to relate to the founders will help your partnership in that you will be able to see their shortcomings and successes. Being a risk-taker is huge part of becoming a successful venture capitalist.
Build a team
There is no better way to judge if the company you are thinking of investing is worth the money quiet like the people. When you build your own team for your own company you will have trials and errors. When evaluating a potential investment knowing what makes for a standout team could save you a ton of money. Your eye for building strong teams could help you see crucial missing teammates in your investment team. Making a team that is diverse in gender, skills, and race will help give your team different points of view that will benefit your business.
Become an angel investor
Becoming an angel investor is a great way to dip your toe into becoming a venture capitalist. An angel investor is essentially a lightweight venture capitalist. You inject money into a company that could use another round of funding and in exchange you get equity. When choosing an angel investment project chose something you already have experience in. If you are highly experienced in a certain niche you can mentor others in that same niche. There are many ways to be a great angel investor, but your skills will be better suited in an industry you are already familiar with.
Set money aside
This might seem obvious but you need some big capital to be a venture capitalist. While technically you and your buddies could pool money and be considered “venture capitalists”. In order for a large venture capitalist firm to take you seriously, you’re going to need to put up some serious coin. Buy-ins for large firms can get up in the millions. Set aside an amount of money you are comfortable with. Like with any investment the money you use should be money you are willing to lose. Obviously losing money is not the plan but it is a real possibility when it comes to investing.
Thoroughly evaluate investment opportunities.
Once you are part of a VC firm you might be expected to be part of the committee. Your fellow investors are counting on you to do your part in selecting sound investments. After all, it is everyone’s money on the line and you’re either going to get more rich or poor together. Take this role seriously. If you are an expert in forecasting or finances let the rest of the committee know and take on that role when evaluating investment opportunities.
If you think you’re ready to take on the real-life shark tank and put your money where your mouth is maybe becoming a venture capitalist is for you. To make sure your money doesn’t go down the drain make sure you have experience. Start your own company, build a team, set some money aside and do your best to chose solid investments. Make sure you’re not playing with money you are not afraid to lose. We hope you’ve got the skills to take big risks and make some big rewards!