Venture Capitalists

Description of Venture Capitalists. Explanation.

Definition Venture Capitalists. Description.

Venture Capitalists are the outside investors financing new (start-up), growing or struggling (Turnaround) companies. Such investments generally are high risk, but offer the potential for above average returns when the company files their Initial Public Offering. VC's are often wealthy former (chief) executives at firms similar to those which the partnership funds or subsidiaries of banks and other institutions with large amounts of available venture capital.

Venture capital investments can take the form of either preferred stock equity or a combination of equity and debt obligation, often with convertible debt instruments that become equity if a certain level of risk is exceeded. The common stock is often reserved by covenant for a future buyout, as VC investment criteria usually include a planned exit event (an IPO or acquisition), normally within three to seven years.

In most cases, one or more general partners of the investing fund joins the Board of Directors of the new venture, and will often help to recruit personnel to key management positions.

Venture capital is especially suitable for high-tech entrepreneurs, as venture capitalists often keen on ventures with high growth potential, as only such opportunities are likely capable of providing the financial returns and successful exit event within the required timeframe that venture capitalists expect.

Sometimes VC's specialize in providing certain types of venture capital, including seed money (to establish a Start-up Company), first round financing, Venture Funding, second round financing, and mezzanine level financing (immediately preceding an IPO).

Compare with: Initial Public Offering  |  Venture Funding  |  Exit Strategy  |  Vulture Capitalist  |  Turnaround Management

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End of description Venture Capitalists. An explanation.