Learn How You Can Make Money Using Risk Capital. Risk capital is a mount of money invested in firms where profit projections and returns are not sure. There is substantial risk as these companies are new, have got new ideas or are testing innovative strategies. Since, they do not have a tested model and proven record, risk is very high and so are the returns. Some of the most innovative companies like Google, eBay and many others have prospered and survived due to Risk Capital. Investors make lot of money as returns by investing in such startups.
As an investor you can work with the company board to launching the market, revitalize it and turn it around. Risk Capital has been used to fund new companies since last part of 18th century. In 20th century it became an industry.
In UK alone, there are over 100 venture capital firms which pump in more than seven billion pounds every year. Usually, risk capital goes into entrepreneurial businesses, as they get least funding from conventional sources, are new and the owner is passionate about what he / her is doing. Businesses which are scalable should be your focus. You need to invest in companies which can grow fast and within five years yield you returns. If you invest in technology sector early on, you will need to wait for a long time before you can get all your money out.
As an investor with risk capital, you should keep your target as to when do you want the returns, what kind of returns you have in mind and which sectors you can go in. It is a good idea to invest in businesses that you understand well. When an entrepreneur makes a pitch for your money, analyze it on the following basis,
* Is the product or service that company will make / sell commercially viable?
* Do you see a clear potential for sustained growth?
* Does the management have bandwidth to take company ahead on a growth trajectory?
* Do you see adequate potential for rewards when compared with risks?
Above points will help you in taking a decision whether the company is worth the risk capital or not. Next step is signing letter of intent and a term sheet based on further deliberations. In a technology startup, you will remain invested for longer period of time as they are slow to mature. When you see that company has achieved a critical mass, you can then take it public or sell of to another group of investors.
Taking a company public is a mammoth exercise and should be properly timed and meticulously planned. There are numerous good ideas floated around everyday. You need to pick just one good idea, invest risk capital and turn it into great company. One successful IPO can make your life and generate more then 300% return on your risk capital. Risk Capital investment is risky but it is very interesting also.