When many of the most well-regarded brands and businesses were coming through the ranks, they had to do it the ‘old fashioned way’, go to the banks – or the bank of mum and dad – take a loan, and grow ‘organically’. Take Phil Knight, for example, the CEO and Founder of a little-known brand – Nike.
He had an almost monthly battle with his little bank branch, on how much he could borrow, how much ‘equity’ or how liquid his business was, and essentially, they controlled his growth trajectory for many years. In fact, the Nike you know today may have never come to fruition had it not been through the tenacity of Mr Knight.
Today, businesses are supercharged by venture capital, in fact most of the companies you use every day – Facebook, Google, Twitter were just that. “Venture capital is a form of private equity and a type of financing that investors provide to start-up companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks and any other financial institutions”.
As can be expected, within venture capital, there are a number of key stages:
Venture capital is almost solely responsible for the rise of the ‘start-up’ revolution. Gone are the days of needing a massive amount of cash to get your business idea off the ground. You need a compelling idea, a pitch deck and a good work ethic, and VC can do the rest.
Venture capital in a way can be providing the seed funding for a friend’s new online business, or providing second round (early stage) funding to your siblings café – it isn’t just about the big end of town.
If you were a VC funder in companies such as Facebook or Alibaba, you would not be reading this book; you would be on an island somewhere. However, with as many as 75% of VC backed companies failing to return dividends to their investors, there is a risk in any investment through VC.
Venture capital is something that requires not only the capital but also the time, patience and risk tolerance if you were to look to invest in it. As a new investor, Venture capital is not recommended, however, you could indeed invest in a fund that engages in venture capital.
Again, although there are many success stories when it comes to venture capital, it has most certainly made many people very wealthy, you should always seek advice before delving into an area with such high expectations, and such high total loss rates.