Venture capital investment refers to the investment of funds in emerging companies or business organization and promising start-ups. The venture capitalist who makes the investment in the company receives an ownership interest in return for the money invested. The investment usually is by way of shares or equity.
Venture capital investment allows the investing capitalist to be closely associated with the working of the business. Apart from monetary investment, the venture capitalist can provide other forms of assistance to the organization such as expertise and planning. Nonetheless, the motive behind this investment is to make more profit and, therefore, the investors look for start-ups that have the potential to grow fast.
The most common factors that venture capitalist look for includes:
High growth prospects
Ability to convert plans into reality
Viability of product or service
Balance of risk and expected profits
Justification of venture capital investment and investment criteria
Potential for sustainable growth of the company
Investment capitalist must conduct a due diligence process of the business organization to ensure that the affairs of the organization are fit and proper. In most cases, they assess the financial and technical feasibility of the business in question.