Priyanshu December

PRIYANSHU KEJRIWAL
FE-01976
How do Venture Capital Firms Operate ?
Venture capital (VC) is a sort of private equity and financing provided by investors to
start-up enterprises and small businesses with the potential for long-term growth. The
majority of venture capital is often provided by wealthy individuals, investment
banks, and other financial organisations.
However, it is not always in the form of money; it can also come in the form of
managerial or technological know-how. Venture capital is often given to start-ups
with outstanding growth potential or to businesses that have had rapid growth and
seem well-positioned to keep growing.
For investors that put money up, it can be dangerous, but the prospect for above-
average profits is a tempting reward. Venture capital is gradually becoming a
popular—even necessary—source for obtaining funds for new businesses or projects
with a brief working history (under two years), especially if they do not have access to
capital markets, bank loans, or other debt instruments. The biggest drawback is that
investors typically receive shares in the business and consequently a voice in
corporate decisions.
Venture capitalists typically work for venture capital businesses that raise money from
external investors, in contrast to angel investors who invest their own money. High net
worth individuals, family offices, and institutional investors like pension funds and
insurance corporations can all be considered limited partners.
VCs spend the money they raise in companies that have the potential for rapid growth
or that have already experienced spectacular growth. The many stages of venture
capital financing correspond to the various stages of a company's development. Start-
ups frequently go through these phases as they develop and obtain funding from
venture capital firms on multiple occasions.
While some VC firms specialise in a particular stage, others take a more general
approach and invest in businesses at many stages of the business lifecycle. For
instance, seed stage investors support the development of early-stage start-ups,
whereas late stage investors support the expansion of established businesses.
Numerous VC firms focus their investments on a single industry or industry vertical.
Businesses can frequently access substantial amounts of funding through VC

financing. Additionally, the proper investor brings value to the business by
contributing their knowledge, expertise, and connections. An investor frequently
requests to join the company's board of directors as an official board member or board
advisor as part of a venture capital arrangement. They can actively contribute to the
company's success by participating in strategic (and occasionally operational) choices.
Businesses go through many stages of venture capital as they develop. Additionally,
businesses or investors could concentrate particularly on a single stage, which has an
effect on how they invest -:
• Seed Stage
A seed round is when a venture capitalist invests a very small amount of money
in a firm to be used for business plan creation, market research, or product
development. A seed round, as its name implies, is frequently the company's
first formal round of institutional capital. In return for their investments, seed
round investors frequently receive convertible notes, equity, or preferred stock
options.
• Early-stage
Companies in the development stage are the target audience for venture capital
funding in the early stages. Due to the fact that new firms require more funds to
launch operations once they have a viable product or service, this level of
financing typically has a higher funding amount than the seed stage. The
rounds or series in which venture capital is invested are identified by letters:
Series A, Series B, Series C, and so on.
• Late-stage
The late stage of venture capital funding is for more established businesses
with shown revenue generation and growth, whether or not they are yet
profitable. Each round or series has a letter assigned to it similar to the early
stage. Although late-stage investment rounds can run up to a Series K, Series
D, Series E, and Series F are more typical.
A venture capital business makes money and distributes returns to the limited partners
who invested in its fund if a company it has invested in is bought or goes public.
Selling some of its shares to another investor in what is referred to as the secondary
market would also be profitable for the company.

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PRIYANSHU KEJRIWAL

Businesses can frequently access substantial amounts of funding through VC

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