A venture capitalist is private equity investors who offer capital to enterprises that demonstrate the potential for high growth. In return, they gain part ownership of the enterprise. This enterprise could be a startup venture or existing small businesses that lack the resources to scale up.
A venture capitalist targets businesses that have reached the stage of commercialising their idea. This means they have crossed the barrier of initiation and have tested their offering in a small market. Venture capitalists stand to gain huge profits from these businesses should they expand, however, the uncertainty of entrepreneurship can also cause serious losses at times.
How Does a Venture Capital Fund Work?
Venture capital funds are created in the form of an LP or limited partnership with multiple partners investing in the VC fund. Once enterprises have been identified with higher growth potential, this fund is released to finance these startups or small businesses. In return, they receive a significant stake in this business’ equity.
What most people don’t know is that venture capitalists for startups don’t generally start by investing in startups. Instead, they focus more on established businesses looking to scale up. These businesses have a clearer understanding of what works and how to improve as they have already been in the market for a while.
Venture capitalists have multiple areas of interest when it comes to investments and capital. Data show the leading areas in which venture capitalists stand to gain a higher return on investment.
VCs Go Local, But That’s Changing:
Data by TechCrunch analysed 57% of financial relationships between investors and enterprises in the same state in the US. Of these, about 50% of relationships existed between startups and investors within the same city and metropolitan area. As time goes by, investors are more open to investing beyond their home states in return for a higher ROI.
There are different areas in which venture capitalists invest, which includes startups and businesses as only a small part. These areas are:
- Government offices
- Angel investing
- Accelerator programs
- Venture Capital firms
- Micro VC firms
- Family offices
- Corporate Venture Capital
According to TechCrunch, about 52% of corporate venture capital investors are from a different state, while 48% are investing in their own state. In contrast, government office investments only have 23% of investors investing outside their home state.
Why Their Investment Areas Are Important for Your Business:
If more investors are looking to invest in their home states, it means your startup will more likely receive funding from an investor within your city. Most startups and enterprises looking for investors should target local investors for their businesses. While more investors are going beyond geographies to invest in businesses, local investors will continue to play a key role in business growth. If you are looking for venture capitalists for your startups, make sure you fully understand what their key investment areas are, including the location of their investments. You will waste money and resources chasing a strong investor if he is not interested in investing in your domain or area.
