Understanding the role of venture capitalists in a business

1. Understanding the role of venture capitalists in a business You need to have a strong back up of money and resource while setting up a business. That is called venture capital. Venture capital’s true definition is the money or the funds that are raised or used in order to either set up a business or expand the business. Venture capital is what helps the firms develop and grow in the early stages. Companies that are predicted to have higher growth potential are chosen to invest by larger investors. This investment is called venture capital. It is important to remember that such investments are quite risky to invest into. Why? Because they are highly illiquid. Which means, they cannot be sold or redeemed as and when the investor likes, such as in the case of hedge funds or so. However, the thrill of actually investing into these is that they are capable of incurring high and impressive returns, when the venture finally starts gaining through the business. If your business has taken help from venture capitalist, know that they do exercise the right and power to influence major decisions that are taken in the company. And why would they not, a lot of money that they have but in to your business is at stake, isn’t it? The capitalists need to remember that the returns that they get depend highly on the performance of the business and the eventual growth of the business. So, what are the downsides of having venture capitalists invest in your business? Let’s explore. As discussed earlier, venture capitalists have a big say in your big decisions regarding your business. This could feel like you are losing some ownership in it, especially when you want to be in control of your business. They exercise voting rights and veto rights as well through their shares in the company. As the company grows, their share and their money in the company also grows. They may also have a right of say in the investment in ESG funds in India or wherever the business is set up. www.avendus.com

2. On the contrary, having venture capitalists invest in your business could have a plus side as well. usually, the venture capitalists are veteran business men or people who have a great amount of knowledge on how businesses are carried out. So, if you have a brilliant idea for a business, but have no background of business handling, then the business experts that your VCs are can help you out in with their added expertise to guide you in the journey. Usually, venture capitalists invest in the business when it is in the infant stage. Only when the business matures and bears the sweet fruits of great returns when the business goes public or is bought by another venture, do they consider selling their rights or shares. This is because the equity shares would then gain them a massive amount of profit for the little investment that they had made earlier. They may then move forward to some other business or some other small business that needs venture capital in order to grow. www.avendus.com