In the article I’ll tell you about why it is important to Learn More About Risk Capital. Risk Capital or Venture Capital is a type of private equity capital, investors put in high potential growing companies. Investors look forward to make money by selling their stake in these companies after a period of three to seven years. If you wish to make money and have some funds, Risk capital is a great idea. It is very interesting concept.
As an investor, the risk capital that you put in is exchanged for certain stake in the firm. That ways you will get to provide strategic inputs for running the company. When you wish to realize gains and make money, you can sell your stake in open market or to another investor.
The trend to invest in venture capital began as early as 20th century. Wealthy families like Rockefellers and Warburgs invested in numerous companies. Venture capital investments gained momentum during the Internet Bubble of 1995. Though, most startups failed to survive from that period, Risk Capital still remains most trusted source of funding for start ups and small companies.
As an investor, you should look for ideas that have some scope to grow large. It is essential that ideas you look into must have growth potential. If you wish to multiply your investment by 300% and more, keep open to as many ideas as you can. Your 90% investments will not make any money and you will be lucky to recoup the investments. But the remaining 10% will more then make up for the rest. Risk Capital investing is a high risk high gain business.
Once you have selected a company for investment, it’s your turn to sign a Term Sheet and Letter of Intent. These documents are based on the Valuation of company. Term Sheet is smaller version of the Letter of Intent and will include the following:
* Type of shares and number of shares to be held by Risk Capital Owner
* Intended usage of capital
* Terms for the preferred stock
* Binding on transfer of stock
* Covenants if any applicable
* Miscellaneous terms applicable on both parties
Once both these documents have been finalized, you can begin working with the entrepreneur to grow the company. Most business owners welcome the assistance of Risk Capital owners, due to wide breadth of their experience and knowledge. If you are investing in a company, you can pool in your resources and contacts to manage the company better.
Usually there is a lock in period where in you will have to remain invested in form. Post this period if growth is good, you can sell your stake to public through an IPO or through private placement to other investors. This sale will help you realize the returns on your investment.
Risk Capital Investments are more suited to investors who have experience in some industry as that will enable them to select better ideas. If you are experienced in real estate or in IT industry, you will have better perception of dynamics and so you can pick better candidates for high growth. Risk Capital investments allow investors to work with great companies and making money also on the way.