Invention and innovation are driving the global economy. The internet is filled with flawless Silicon Valley businesses’ success stories. But not everyone notices venture capital investors next to them who once believed in the idea.
By VLADIMIR RUSINOV
Together with IT businessman and international investor Rustam Gilfanov, we understand how venture investments work and when startups need to be supported by venture capital.
Venture Capital: What Is It?
For companies, venture capital is an instrument of financing and for institutional investors and well-off people, it is an investment instrument. To put it another way, companies make money in the short period and investors increase their income in the long-term period. To raise venture capital funds VC companies bring in investments and use this capital to buy shares in companies that are at an early or at the late stage of development depending in what area the firm is specialized.
Great risks are one of the characteristics of venture capital but also it is characterized by big profits. conversely, venture capitalists must invest in modern technologies in addition to products that have huge potential for scaling but are not profitable now. Moreover, less than one-third of venture capital-backed startups succeed. However, VC investments can turn out to be very profitable, it depends on the possibility to launch a successful portfolio.
Startups raise venture investors to leverage the expertise, resources, and networks of venture capitalists. The mentorship that venture capitalists can provide is exceptionally valuable for aspiring founders. Venture capital companies more efficiently evaluate startups in the early stages of development with the help of criteria that are beyond financial statements, estimating product, determining market size, and estimating the startup’s founding team.
Venture money plays an important role in the following stage of the innovation life cycle — the period in the life of a startup when it begins to commercialize its innovation. About 80% of the invested venture capital goes towards creating the infrastructure needed to grow the business — for investments in expenses (production, marketing, and sales) and the balance sheet expenses (providing fixed assets and working capital).
How to get venture capital funding
Venture investors invest in high-margin projects and businesses with a scalable business model. The venture investor is interested in projects related to innovative areas such as information and cloud technologies, biopharmaceuticals, and renewable energy.
The chances of getting the funding can be increased if you get beyond the startup stage and can demonstrate a viable product or service. Venture capitalists stake on startups that are ready to boost fundamental changes in consumer or business behavior.
Many of the world’s most famous companies started their lives with venture capital funding. In the UK, these are, for example, Skyscanner and Moshi Monsters, as well as world-famous Google, Facebook, and Skype.
According to Gilfanov, startups need to understand how venture capital firms operate. Keep in mind that investors support startups with one main goal: to profit from their investments. They are mainly interested in money.