In the article I’ll tell you about why it is important to Know More Before You Invest. Risk Capital is one of the ways in which investors get huge returns. Since early 20th century, venture capital has helped numerous businesses flourish and grow big. In our time also, companies like eBay, Amazon have done extremely well with help of Venture capital Investors. If you wish to make money using Risk Capital, you need to understand the dynamics of venture Capital Market.
As an investor, you can pool in your own Risk capital as well as take money from Insurance Companies, Educational Endowments, Pension Funds and Wealthy Individuals. The attraction for these institutions and individuals is the high returns offered. The risk and reward evaluation is even as most companies that you invest in will not succeed and fade away. In fact, it is a good idea to be prepared to loose out money in around 90% of your investments. It is the remaining 10% that more then make up for it.
Venture capital Investments are separated from other investment classes. If you look at any balance sheet or investment portfolio, you will see a separate category called Alternate Investments. Venture Capital investments or Risk Capital Investments feature in this category.
If you have surplus capital but no experience in investing Risk capital, you can join a Venture Capital firm. Most Venture Capital firms are limited partnerships and will take you on as a partner. If you join as a general partner, you will need to meet lot of investors, find good opportunities. For every 100 ideas, you will at best distill one good idea and then invest.
As an investor with Risk capital invested in businesses, you will be required to work with management team of each company and serve on its board of directors. That ways you will get an opportunity to assist the entrepreneurs and take company on growth path. If you are looking for very high returns from your risk capital, you should work with at most 6 companies at a time. That will be enough.
Even after doing through due diligence you will see that of 3 companies only one will succeed. The measure of success of a company for you is when you are able to recoup or harvest your investment. That happens when you are able to sell of your stake or take the company public using IPO route.
If you join as a limited partner, your Risk capital will be involved only when called upon by the general partners. They will ask for your money when they think that a really good investment opportunity has risen. At that point you can invest. This is called a Capital Call. Most funds work for at best 10 years. You can expect to harvest your capital in about 5 years with good returns.
If you have understood all these concepts, you are now ready to invest and get returns on your Risk capital. Risk Capital Investments are an extremely essential driver of our economy.