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Venture Capitalism 101

Venture capital (VC) is a type of private equity that refers to providing funding to startup companies with high growth potential. A VC firm invests in these businesses for an ownership stake. Many of these startups are based on technology with a great risk of uncertainty, so venture capitalism can be a risky business. Once these startups go public, a VC firm hopes to get a large return on investment (ROI). The VC world isn’t for everyone, so here are some things to know.

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Getting Started

No two entries into venture capitalism look the same. Many venture capitalists have backgrounds in invesetment banking or entrepreneurship such as Eyal Gutentag, while others come from the worlds of technology, finance and law. Starting your firm doesn’t necessarily demand having large sums of money since VC firms often leverage funds from third parties. That said, having a lot of money does significantly expand the number of opportunities.

Venture Capitalist Tendencies

Some traits that tend to be common to venture capitalists include:

  • Having an MBA, particularly from an elite university, such as Harvard or Stanford.
  • Being based in tech, consulting, investment banking and/or startup.
  • Maintaining a strong social media presence.
  • Having a successful record in investing.

As a venture capitalist, you tend to spend most of your time with business partners than family.

Harsh Reality

Most VC firms fail since many startups end up going under. As with other types of investing, there is no such thing as a sure bet. Moreover, many firms don’t break even within 10 years. Other types of investing, particularly crowdfunding, have become more popular when it comes to financing startups. People who work in VC spend long hours meeting and networking with no guarantee of reward.

Venture capitalism can be exciting and rewarding. Building equity in emerging businesses comes with great risk. Despite the low odds for success, it can be a very lucrative business if you pick a winner.