The Role of the Venture Capitalist

Abstract

VENTURE capital is a long-term investment business in which money is put to work for five to seven years and a venture capitalist has therefore got to be a long-term financial partner for an entrepreneur and the company’s managers, which is at the other end of the spectrum to a hedge fund. He must assess the company as having good growth prospects within an existing strategy, management of calibre who are worth backing, and financial projections which can produce a good return on the valuation being offered. Reciprocally, as his enthusiasm for an investment waxes, he has to persuade the company’s management team that he can add real value to the business, if he is to get the deal on reasonable terms, often against higher bids. A perceptive entrepreneur and his or her team will want to choose a financial partner who makes a really positive contribution to the development of the business, and will not concentrate solely on maximising the latter’s entrance price, but rather will judge him by the size of the cake that he can help to create at the end of the venture capital span.