In this article I’ll tell you about why it is important to Beware Of Investing In Risk Capital. Risk Capital remains a popular investment option today. It is no longer a fad like the dot com bubble, when everyone was funding a company with millions of dollars and taking these companies to market. Investing in new high growth companies is a high risk and high reward business.
Venture Capital or Risk Capital requires lot of experience and some measure of luck. Since most firms which come for risk capital investments are very new, and do not have time tested business model, product or a service, their success is not a surety. If you have no experience in investing, there is a good chance that you will not be able to recoup your investments, let alone returns from first few companies that you put the risk capital in.
In past, Risk capital Investments worked due to the fact that markets were up, global economy was growing. Almost all sectors in industry were doing well. Things have changed now. We are looking recession that has touched everyone in some way. At this point, confidence in stock market all around the world remains very low.
The best way for an investor like you was to take your company public, take the IPO route and get better valuation. This may no longer be possible as markets are dipping lower every day. Other companies which were established are also facing cash crunch, so a buy out from other players will also not fetch good returns. For some time, the model used by venture capitalists or risk capital investors is not going to work very well.
At this point in time, its best to work with companies where you have already invested some money and help them brace the heat. In tough times, entrepreneur with little or no past experience will require the assistance of seasoned players like you. So, if you have some companies in your kitty, you should focus on them right now and look for investing opportunities later. In case you are starting now as investor with risk capital, be sure about the commitment of the entrepreneur. Focus on how to raise the business with minimum expenditure.
Originally, risk capital investors looked at time frame of about 3-5 years for harvesting their returns. That is not so now. You will need more time to recoup your investment and make money. The traditional sources of funds for investors like you are limited now. Earlier, pension funds, educational endowments also used to work with risk capital investors and lend capital. Now, these organizations are also tied up and face trouble so this source of traditional funding available to investors is dead.
Investing Risk capital is a difficult game now and returns are not very visible on horizon. As a savvy investor you can look for other area open to investing or diversify and invest in different geographies also. That ways, you will be able to control the risk to some extent if not minimize it fully.