Where do Venture Capitalists Invest?

Venture capitalists are keen in only those businesses which have high growth potential. The structure and the returns, the venture capitalist expect, can be offered by only high growth potential businesses. So the venture capitalists are very choosy while taking decisions on where to invest. A report suggests that when 400 business projects are submitted, only one of it is chosen to invest.

The main reason behind this is that if the business does not have the growth as expected, then the venture capitalist can not have an exit event in planned time. So for everyone, the venture capital is not appropriate.

What do Venture Capitalists Expect?

The first thing is that they should be able to appoint people to main management positions. A phrase is derived from this is to put people in place. And on the companys board of directors, they should be able to acquire one or more seats.

The other thing they expect is generally known as harvesting. In 3 to 10 years they should be able to sell their stocks, options, convertibles, warrants or other types of equity. Venture capitalists are aware of the fact that all the investment will not be returned back. The failure rate can be in the range of 20 % to 90 %. About 20% to 90% of businesses in which venture capitalists invested, were not able to return the invested capital.

How do they Make up for such a High Loss Risk?

Through diversification most of the venture capitalists try to solve this problem. The investment is made in the businesses from different industries and different countries. So when one venture looses money and other is in profit, the overall portfolio is in good shape. Thus the risk is decreased.

Some venture capitalists invest in only those businesses which are known to them. The venture capitalists in both cases do business on the same belief. If they invest in ten companies, successful businesses will be two, failed will be two and a little bit successful will be six.