Who are Venture Capitalists?
Anyone who wants to fund fledgling companies can become a venture capitalist. Generally this type of investor is very selective of the companies they invest in, and they may or may not specialize in a particular industry. For example, Arthur Trueger, and his company BerkeleyVC, specialize in tech companies. These investors are willing to accept very high risk with the confidence that the companies selected will succeed in yielding significant profits in the future.
The VC firm will usually exit with its returns (or losses) after several years, which is traditionally around three to seven years after the initial investment.
While it is possible for this type of investment to be made by individual investors, it is more common to find groups of investors that have joined together and who pool their funds to support the same company through a venture capital fund or firm, as previously mentioned. Venture capital can also come from investment banks or other financial entities. Typically, each venture capitalist receives a position of influence and financial returns with respect to the amount of their initial monetary contribution.
Due to the high level of risk venture capitalists endure, it is usually in their best interest to be involved in the business of the company. These investors work closely with the invested company to build growth, foster good management practices, develop strategic business plans, and provide useful input that paves a path to success. Becoming involved in the company reduces the very high risk associated with venture capital investing.