If you’re a new entrepreneur, chances are you’re hearing new phrases and acronyms on an almost daily basis. All you wanted was to launch your dream, not learn a new language. This is part of a crash-course on terms and ideas every new entrepreneur needs to know (and mostly understand).
The most pressing need among entrepreneurs is funding to help launch their dreams. Many entrepreneurs don’t have the resources necessary to fully fund their new startups. They need help from the outside before their dreams can become a reality. Enter venture capitalism.
Venture capitalism, sometimes referred to as VC, is where an outside investor or group of investors (venture capitalists) provides a significant amount of funding in hopes of long-term revenue success. Venture capitalists usually have a history of startup funding, business success, and executive leadership experience.
The best current example of venture capitalism is ABC’s primetime show Shark Tank. Multiple famous venture capitalists, such as Mark Cuban, Robert Herjavec, and Barbara Corcoran, listen to entrepreneurs pitch their business ideas as possible investments. The investors then choose whether to invest their own massive capital (money) in exchange for partial ownership and percentage of expected revenue returns.
So, how much do venture capitalists typically invest in a startup? The National Venture Capital Association reports that in 2010 venture capitalists invested roughly $22 billion in startups and existing companies (Source). There are currently well over 700 venture capital firms located in the United States overseeing upwards of $170 billion committed to investment.
Funding isn’t the only aspect of venture capitalism. By their sheer experience and business connections, venture capitalists are capable of bringing unlimited resources to a startup’s enterprise in the form of name recognition, exclusive access to keynote introductions, and other various benefits.
If you’re an entrepreneur considering venture capitalism as part of your startup funding, it’s worth doing your research to determine your attractiveness to potential VCs. A clear and well-researched startup is the first step towards gauging your appeal to any investor, let alone a venture capitalist looking to invest seven figures into your dream.
The next step is finding an investment mentor willing to give you an honest review of your startup potential from an investor’s perspective. Choose carefully and if they give you the green light, ask for a referral a VC firm or individual. From there, the sky is the limit. Who knows, maybe you’ll be on the next season of Shark Tank.
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