Who are Venture Capitalists?

Jan 30, 2010
Munya Mtetwa

Venture capitalist support businesses through providing equity funding as they exchange their funding to an organisation with share holding. Most businesses that seek venture capital funding do so because they are considered too risky by banks and other providers of finance, therefore they do not have an alternative source of funding.

In some cases venture capitalists also proactively identify, screen, scrutinise and invest money in companies that meet their criteria for selection as an investment target. Examples of firms that have been subjected to this include high tech firms, bio tech firms and IT firms.

The expectation from the venture capitalists is that at some future date the business will become profitable resulting in payment of dividends and also growth in their investment. Ultimately venture capitalists recoup their investment through selling their shares or the whole company to outsiders. Venture capitalism is a high risk business therefore most venture capitalists hold a portfolio of investments to diversify their risks or to neutralise the potential loss from a venture.

Venture capitalists finance only a tiny number of selective businesses. Each venture capitalist may specialise its funding only on a certain stage for example one venture capitalist may only concentrate on business start ups. Below are the main venture capital’s funding stages;

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