![]() Venture capitalists come to the table with a lot of business and institutional knowledge. Disadvantages of working with venture capitalist firms They’re also well-connected with other businesses that could help you and your startups, professionals that you might want to take on as employees, and - obviously - other investors. While you don’t technically have to “pay back” venture capital, venture capital firms are expecting a return on their investment. That means that a startup that accepts VC money needs to be planning for an exit of some kind, usually an acquisition or an IPO. If that’s not your goal - or if you see yourself running your startup forever - then venture capital is not for you. On that note, part of what venture capitalists want in return for their investment is equity in a startup. That means that you give up part of their ownership when you bring on venture capital.ĭepending on the deal, a VC may even end up with a majority share - more than 50 percent ownerships - of a startup. If that happens, you essentially lose management control of your company. ![]() How does venture capital work?Ī venture capital firm is usually run by a handful of partners who have raised a large sum of money from a group of limited partners (LPs) to invest on their behalf. The LPs are typically large institutions, like a State Teachers Retirement System or a university who are using the services of the VC to help generate big returns on their money. The partners have a window of 7 to 10 years with which to make investments, and more importantly, generate a big return. These big outcomes not only provide great returns to the fund, they also help cover the losses of the high number of failures that high risk investing attracts.Ĭreating a big return in such a short span of time means that VCs must invest in deals that have a giant outcome.
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