Myths about venture capital
Venture capitalists (VCs) are similar to mutual fund managers. They raise money from large investors — banks, insurance companies, large corporates, etc — to invest in private unlisted entities. They do this for a fee and also take a per cent of the profits. They have about 8-10 year time window within which they have to get in (by buying shares) and come out (by selling shares) of the company.
What’s at stake?
All the VCs are interested in taking a per cent equity in the company against the money they invest. Venture capital is a risk investment. If your venture fails to do well, the VC loses his money, time and effort. Unlike a loan, the entrepreneur is not liable to return this money.
Is the money for free?
You have to give a part of your company up front. VCs also look for high returns (40-50 per cent).
Should I give a collateral?
They do not ask for a guarantee to their investments, which is the reason why they spend a lot of time trying to establish trust and credibility in the entrepreneur.
Can I get Rs 5-10 lakh from a VC?
Most of the VCs manage over Rs 100 crore of funds. So do not waste your time going after VCs if your requirement is small.
What businesses get venture capital?
Many businesses do not get venture capital like cash-flow positive (ad agency/recruitment), service oriented (training, franchisee), capital intensive businesses (dams/roads), single promoter driven (proprietorships, manufacturing workshops). Most VCs have their own qualification, selection and rejection criteria and focus on certain sectors (technology, healthcare, energy). So go to the right investor and invest your time wisely.
Originally Article Published in : http://expressbuzz.com/education/myths-about-venture-capital/359931.html