WHY do venture capital funds invest in businesses I just don’t get this read below?
Posted by admin on 17 Nov 2008 5:38 pm. Filed under Investing.
nader r
Okay so say I have a business idea and I tell the VC and they give me ALL OR SOME OF THE MONEY to start the business and I STILL GET A LOT OF EQUITY IN IT. WHY wouldn’t the venture capital fund just use that money since they have to pay most or all to open it themselves and then they would own it all think about it same amount of money with 100% equity why?
Okay so say I have a business idea and I tell the VC and they give me ALL OR SOME OF THE MONEY to start the business and I STILL GET A LOT OF EQUITY IN IT. WHY wouldn’t the venture capital fund just use that money since they have to pay most or all to open it themselves and then they would own it all think about it same amount of money with 100% equity why?
3 Comments to “WHY do venture capital funds invest in businesses I just don’t get this read below?”
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On November 19th, 2008 at 1:42 am
They aren’t investing in an idea. They’re investing in a company, which includes people working to make it a success. The people’s work and the VC’s money both share in making it a success so they both share in the profit.
On November 20th, 2008 at 5:35 am
because they are not smart enough to come up with new ideas for business. plus they may not know how to run the business.
On November 20th, 2008 at 6:15 pm
The VC’s are looking for firms with strong business plans and executives/staff with proven expertise or a lot of promise.
They get their payoff when the company goes public - they get in return a lot of equity, also (60-40%) which they can then sell.
How much do you think the VC firm made that took Google public? Or Yahoo, or Oracle, or Paychex? Probably many millions, right?
The VC invests in the start up or small firm, lends it some managerial or operational expertise, and then watches the firm take off. It’s a riskier investment than it would be for an investment in a publicly traded firm, but the rewards are commensurate - 60-80% returns aren’t unusual in VC.