It is imperative to have the right kind of funding in order to put your ideas into action. Venture capitalsupport startups by providing much-needed capital.For those interested, the following books offer good insights into the exciting world of start-ups and VCs:
The Art of Startup Fundraisingby Alejandro Cremades
This book mainly deals with online sources of funding for startup businesses. It gives guidelines on how to identify the appropriate investor, depending on the kind of business one is planning to venture into. It also enlightens the entrepreneur on aspects of digital fundraising.
Introduction to Private Equityby Mahendra Ramsinghani
This is a book deals with the theoretical perspectiveof venture capital and its application. It also captures findings from interviews carried out on experts. It is a recommended reference work for professionals and amateurs
Venture Dealsby Brad Feld, Jason Mendelson & Dick Costolo
This book enlightens entrepreneurs by explaining what venture capital is all about and what strategies they should put in place in order to access funds. The book alsohelpentrepreneurs to avoid the common mistakes committed during the startup business stage.
Venture Capital for Dummiesby Nicole Gravagna & Peter K. Adams
This is a book explains the terms used in venture capital. It also enlightens the readers on t venture capital and startup.The book offers a wealth of information on VC, startup funding and terms used in the venture capital term sheet and valuations.
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 forstart-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.
There is no “perfect profile” for venture capital jobs because venture capital firms themselves are very different. This makes it difficult for individuals to know if they would be attractive to these firms. However, there are a few characteristics that provide an idea of a person chances:
It is obvious that many venture capital deals occur in the technology field. Therefore, individuals who studied computer science, biotechnology, engineering, and other technology-related fields have better chances of working in VC firms. Marketing studies are also useful to some degree, but not common as a science background. Finance/ Business/ Accounting are only popular at large VC firms.
An ideal profile for venture capital should include professional background. Although the requirements of VC firms vary, the most popular backgrounds are engineering, product development, research, sales or operational experience, and entrepreneurs with experience launching. Although useful, investment banking and strategy consulting experiences are not very popular professional work experiences.
Personalities are the key differentiating factor. The VCs look for an entrepreneurial drive (a curious personality), great communication skills, raw intelligence (the ability to asses interesting opportunities fast) and charisma (an ability to convince other people to work with you.
If you are entrepreneurs and you are looking forward to get some funds from a venture capital firm, you must be prepared to answer some questions that may be asked by the VC investors. Below are some questions entrepreneurs are likely to face:
What is the potential market size for your services or product currently?
This is one of the most likely questions entrepreneurs face. If the market is not growing or is too small), then investors might not be interested in investing in it. The aim of this question is to check if entrepreneurs understand their market.
How much potential market are you capable of achieving?
This question accompanies the previous question. Here the VC firm want you to give an idea of the company’s potential. It also tests if your assumptions are realistic.
Why will customers buy your product?
If you’re asked this question, the VC investors want to know if your product or service will attract customers. When addressing this question, focus on the need that the product or service will address.
What is your competitive advantage and how is your business protected?
Here, the VC firm wants to know the advantages of using your product or service. Do you have IP protection or copyright, lowest cost of production, special knowledge, etc.
Interviews at VC firms are more informal than those at private equity firms or investment banks. The questions are more oriented toward fitness and motivation, and less technical. However, although these interviews appearlike chats between two people, they aren’t easier. The following three interview questions will give you an idea of what to expect if you are invited for an interview in a venture capital firm.
Why do you want a job in VC firm?
Before you go for the interview, make sure you are prepared to answer this question. This question is mostly the opening question in almost all interviews. Some of the reasons why you might be interested in venture capital include the love of the technology, enjoying communication with interesting individuals, excitement of investing in companies, chasing the next Google and the thrill of looking at new ideas.
Why are you interested in our firm?
Research about the VC firm– find out how the company is unique and how it uniqueness matches your ambitions and skills. You can mention the great investment the company has made, friends’ recommendations, any favourable press articles, a specific focus they have, the company track record, etc.
What is happening in the venture capital industry at the moment?
Ensure you read press release articles that provide the key sector trends. The interviewer wants you to clearly articulate the main drivers of a specific sector. Use clear statistics and facts to explain what is happening. You don’t need to be an expert in the venture capital industry, but you should be aware of the big trends.
People working in venture capital firm are known as “venture capitalists”. These people either come from consulting or corporate backgrounds, entrepreneurial backgrounds, or finance background. Titles in venture capital firms vary but the following are main categories:
An analyst is the most junior professional in the firm. They usually have 1-2 years’ prior work experience. The analyst’s key role is to network, keep an eye on latest industry trends, take part in VC and industry events, and call potential target customers to learn more about their business.
Associates are expected to stay until they became partners. They are usually operational leaders, investment professionals, consultants or ex-bankers. Their role is more focused on business plan analysis, due diligence, examining interesting industry subsectors, executing transactions, and helping out portfolio companies.
Principles make portfolio companies run smoothly and they are on the board of several portfolio companies. Their other role is to network and to identify opportunities for the firm to negotiate terms or acquisitions. They also assist to exit portfolio companies.
Principle and partners have similar roles. The only difference is that partners are less involved in the daily deal-making. They are more involved in tasks such as finding key sectors to make investments in. They determine when to invest and exit.
A venture partner is an individual that a venture capital firm brings on board to manage them and help them do investment, but is not a permanent and full member of the partnership. Venture partner isa term that means an individual and the firm are not tightly committed to each other. Normally, “permanent and full” member of the partnership are called managing members, partners, or general partners.
There is a difference between “Entrepreneurs In Residence” (EIRs) and venture partners. Venture partners are required to source many deals and manage them while EIRs are required to source a single deal and they don’t run it.
Some examples of venture partners include former entrepreneurs who have many business interests and want to do deals with a venture capital platform, a partner who is waiting to become a full partner, and former partners who are semi-retired but want to do deals.
Compensation of venture partners varies by role and firm. Some venture partners get cash compensation while others do not. Venture partners’ compensation depends on the number of hours they spend on the firm and how they are involved in day to day operations,