What is a venture capitalist? Definition and examples
A venture capitalist is somebody who invests in a new business venture. They provide capital either for expansion or a startup business. Most of them work for venture capital firms and, therefore, do not invest with their own money, but the firm’s money. The term may also refer to a company that invests in new business ventures.
Angel investors are venture capitalists who use their own, personal money or assets. Angel investors typically invest in exchange for part-ownership of a startup or convertible debt.
We refer to the money that venture capitalists invest as ‘venture capital‘ or ‘VC.’ VC is a type of private equity. Private equity refers to shares and debts of a private company, i.e., a company that is not listed on a stock exchange.
BusinessDictionary.com defines venture capitalists in the following way:
“Private investors who provide venture capital to promising business ventures. They typically invest where at least 25 percent annual returns within one to five years are feasible, and often demand 50 percent or more ownership to exercise control over the investee firm to offset their high risk.”
“Often they also provide management and industry expertise and business connections with other firms and venture capitalists.”
Google Inc is a venture capitalist
The term does not only refer to people but also companies. Google Inc, for example, is a major venture capitalist. Its division, Google Ventures, focuses on venture capital.
Google Ventures also has a large European arm, which the company set up with an initial investment of $100 million. Europe, Google says, is teeming with good ideas and it would like to get in there to support interesting startups.
Many scientists and people with good ideas prefer to approach a venture capitalist than to work in a large company. If their idea becomes commercially viable, they make much more money if they had set up a startup.
What does a venture capitalist seek?
Venture capitalists might see hundreds of business plans and ideas each year. However, they end up choosing just a few of them.
They seek great people with expertise. They also look out for ventures that may bring an ‘unfair advantage.’ A business with an unfair advantage is more likely to outperform other companies.
A typical venture capitalist wants a higher rate of return than other investments, such as for example, the stock market.
They invest in promising startups or young companies that have a high potential for growth. However, they are also relatively high-risk investments.
Popular targets for venture capitalists today are IT and biopharmaceutical companies. Clean technologies and semiconductors are also popular sectors.