Venture capital refers to investments provided by wealthy investors and venture capital firms to startup companies with long-term growth potential. Such investments are risky but can provide high returns. Venture capitalists influence major company decisions and provide business expertise and networking in exchange for equity. Venture capital funding is appropriate for business expansion, competition, or launching a product, and comes in stages from pre-seed to early-stage funding. The venture capital process involves a business plan, due diligence, funding in rounds, active advising, and eventual exit via acquisition or IPO after 4-6 years.

1. Venture Capital

2. Definition
Start up companies with a potential to grow need a certain
amount of investment. Wealthy investors like to invest their capital in
such businesses with a long-term growth perspective. This capital is
known as venture capital and the investors are called venture capitalists.

3. • Such investments are risky as they are illiquid, but are capable of
giving impressive returns if invested in the right venture. The returns
to the venture capitalists depend upon the growth of the company.
• Venture capitalists have the power to influence major decisions of the
companies they are investing in as it is their money at stake.

4. Who are Venture Capitalists?
Venture capitalists are those people who invest in early-stage
companies having promising futures. A venture capitalist can be a sole
investor or a group of investors who come together through investment
firms.

5. When Should One Go for Venture Capital Funding?
• At the stage of expansion
If your next plan is to expand your business, opting for funding through venture
capitalists is a good option. Doing so can help you encase their business, financial and legal
expertise which is usually required while business expansion.
• Requirement of strong mentoring
A venture capitalist brings in a lot of expertise, knowledge, and networking along
with his capital investment. You can utilize their guidance to build your own network,
promote your business with their direction and ultimately make it reach bigger heights.

6. At the time of competition
Once a start-up has gained a substantial reach and is most likely
to face competition in the real market, it is the correct time to go for
venture capital funding for surviving and giving tough competition to
others.

7. Types of Venture Capital
Venture capital can be broadly divided according to the growth stage
of the company receiving the investment. Generally speaking, the younger a
company is, the greater the risk for investors.
• Pre-Seed: This is the earliest stage of business development when the
founders try to turn an idea into a concrete business plan. They may enroll
in a business accelerator to secure early funding and mentorship.

8. • Seed Funding: This is the point where a new business seeks to launch its
first product. Since there are no revenue streams yet, the company will need
VCs to fund all of its operations.
• Early-Stage Funding: Once a business has developed a product, it will
need additional capital to ramp up production and sales before it can
become self-funding. The business will then need one or more funding
rounds, typically denoted incrementally as Series A, Series B, etc.

9. The Venture Capital Process
• The first step for any business looking for venture capital is to submit
a business plan, either to a venture capital firm or to an angel investor.
• If interested in the proposal, the firm or the investor must then perform
due diligence, which includes a thorough investigation of the
company's business model, products, management, and operating
history, among other things.

10. • Since venture capital tends to invest larger dollar amounts in fewer
companies, this background research is very important.
• Once due diligence has been completed, the firm or the investor will
pledge an investment of capital in exchange for equity in the company.
• These funds may be provided all at once, but more typically the capital
is provided in rounds.

11. • The firm or investor then takes an active role in the funded company,
advising and monitoring its progress before releasing additional funds.
• The investor exits the company after a period of time, typically four to
six years after the initial investment, by initiating a merger,
acquisition, or initial public offering (IPO).