What is a Venture Capitalist?

What is a Venture Capitalist?

Is venture capitalist funding right for you? And how do you find it?

By Marcia Smith

Skype, Zoopla and Spotify Have Done It...

When it comes to the hunt for business funding, venture capitalists (VCs) can play a key role in the set up and development of businesses by providing that all-essential backing. Many big brands have had their budgets boosted this way, with Skype, Zoopla and Spotify being among the recipients of VC money.

Equity Stake

In return for providing finance, a venture capitalist takes an equity stake in the business. The size of the stake can vary considerably, but most expect to take between 20-30 per cent to make their involvement worthwhile. This will largely depend on the amount the business hopes to raise, relative to the business’s valuation.

In some cases the venture capitalist will get involved in the business, providing advice and assistance. Rarely keeping a long-term stake in a company, VCs aim to realise their investment by selling their stake at a profit, usually within 5 years.

Innovation is attractive

Many VCs are particularly interested in tech startups in industries such as fintech, clean-tech and biotech – they have the potential for fast growth, and bring something new to the business community. This doesn’t mean that other business opportunities are ignored – you only have to watch Dragons' Den to see the range of interests that can spark investment, such as innovative food, design, retail or construction companies.

More than money

Usually, if a VC is considering investing in a start-up business, they look for serious long-term commitment by the company or person they’re seeking to support. No investment is given lightly – detailed financial checks are always made so the process is long and rigorous. It's also essential that if you're a business owner looking for VC funding, you ensure the VC’s interests are largely aligned with yours, and that the investor-body can offer more than simply funding. Experience and network connections are vital additions a VC's money.

Finding a venture capitalist

Check out the Entrepreneur Handbook, which has a list of venture capitalists in the UK, to get an idea of the diversity of funding available.