Kinds of Venture Capital Firms and What They Do
First let us discuss the kinds of venture capital firms. The most common ones are private independent firms. Usually operating under a limited partnership, these firms are not subsidiaries nor do they have affiliations with other institutions.
Banks and other financial institutions, working through their affiliates or subsidiaries, constitute another kind. There is also what we call as direct investors, or those who does the investment in behalf of industrial or non-financial corporations.
Still another group is what we call angel investors, or wealthy individuals who also help provide venture capital.
Venture capitalists make up these firms. There is what we call as generalists, or those who invest in different industries, locations, or stages in a company's life. Those who invest in a particular industry or location only are called specialists.
Venture capitalists act as partners as they help put up the company. Because they are more knowledgeable in the specific field of business than the new entrepreneur, these capitalists help provide the policies as well as strategy. More often than not, company management has no choice but to follow them.
The first important job for the firm is the selection of business proposals. This constitutes a large part of their job. With the many proposals sent before them, it is hard to read and analyze thoroughly all of them. There is therefore the need for research as to which industries and fields are most feasible. Once these industries have been identified, it would then be easier for the capitalists to analyze the proposals, as they are able to weed out the bad proposals or those which they are not inclined on doing.
Since they have a say in the management of the company, they also exercise management decisions such as the hiring of management team, purchase of real estate, entering into an agreement with other companies, and many others. They also assist in other aspects such as product development and marketing.
Part of the firm's job is to find alternative sources of capital. Since these firms belong to a certain network, it is not surprising that they know other firms and capitalists who may later be of help in terms of funding.
The capitalists are not the only sources of funds for the firm. Some of the money may come from other institutions such as pension funds, endowment funds, foundations, angel investors and other corporations. That is why there may be instances where additional funding is from other sources.
Venture capital firms are not mere financiers or investors. As partners of the entrepreneur, they contribute in any way possible for the success of the company. The key then is in choosing the right firm for the type of business that you would want to enter into.
Just like in entering into a partnership, you wouldn't want to be partners with someone whom you don't like to work with.
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