The Entrepreneurial Bible to Venture Capital

If you’ve worked in or even founded a start-up, you probably know the importance of venture capital in realizing your business goals.

But what exactly is venture capital, and how does it work?

Venture capital is a form of private sector finance dedicated to helping new companies establish themselves and grow. “VC” firms usually seek out investment opportunities in growing markets such as information technology (IT) or biotechnology. In exchange for a cash infusion, the start-up gives the VC firm a significant share of company equity.

The market for venture capital has boomed in recent years, as ever more start-up companies are founded and require investment to grow. Today it’s never been easier to launch a new company.

In the 1990s, things were different. Start-up costs were stiff, with fledgling companies having to put together tens of thousands of dollars to cover the costs of servers and software licenses.

As technological innovation has skyrocketed, the cost of starting a new company has fallen considerably. Cloud computing has slashed the cost of storage, as just one example. Today it can cost less than $5,000 to launch a beta version of a website or mobile app!

VC firms know that while there’s plenty at stake, there is also serious potential in start-up ideas. While a traditional bank won’t typically grant a loan to a start-up without a marketable product, VC firms are willing to put up the needed cash early, betting on a serious future payoff.

The term “venture,” in fact, refers to the risks that VC firms knowingly take when they invest in a new company. Some 60 percent of start-ups backed by venture capitalists, however, go bankrupt before the start-up can pay back the investment.

In fact, just one out of ten venture capital investments turn out to be successful – but that one start-up just might be the next Facebook or Twitter!