Working in Finance: Why I Want to Work in Venture Capital

Finance: Careers in Venture CapitalPart 2 of a 4 part series

Venture Capital

Venture Captial firms act as the middleman between people who have money to invest and people who need money to start innovative businesses. Potential business owners look to venture capital firms when they seek a large amount of money to start a high growth company. Many of the dot com companies were kicked off by venture capital funds and there are many biotech companies that rely on venture capitals to get started.
How it works

First, a venture capital firm must amass a sum of money, usually an amount between $10 million and $1 billion. Then the people at the firm seek out or hear proposals from entrepreneurs seeking money from the venture capital firms. Depending on the firm and the fund, a specific category of business is targeted. For example, a fund may only target biotech startups or target only companies looking to get acquired by a larger company within 5 years. The firm determines their target based on how long they want to invest their money and how much risk they want to take.

After the firm has chosen a selected few companies that they want to invest in, they exchange capital (money) for an ownership stake in the company. The amount of ownership that they have in the company comes in the form of stock in the company and also decision making power in the company.

The venture capital firm not only offers money for the companies to start with but they also can provide valuable contacts within the industry of interests to allow the companies to connect to potential resources.

The companies hope to use the money that they have received from the funds to grow their company. They use the money to employ workers, start marketing campaigns, fund research and development and fund any other expenses necessary to grow their company. When the company becomes valuable enough and have enough potential, it may get bought out by a larger company or it can go public (offering stock of the company to the public).