By their very nature, VC investments are risky. Unsecured loans that are given to start-up companies that can’t get traditional loans are referred to as venture capital. Venture capitalists provide capital in return for owning company’s shares. The top risk factors in VC investments include:
The management team takes a key role in the success or failure of the company. Managers with a good record of success in the past are in high demand when it comes to venture capital investments. Venture Capitalist risk in predicting how the team they have come up with will behave. VCs have no assurance that the team will produce effectively and efficiently.
Barriers to Success
While start-ups seeking VC funding may have covered every base they need to get their service or product on the market, companies still have barriers that need to be avoided. Barriers to success include government regulations, recession, patent infringement and theft of intellectual property.
Venture capitalists look for start-ups with high growth potential. Market trends may impact the company growth once poised for success. While VCs may do their due diligence before giving the funds, market factors eventually determine the fate of a new company.