Duties of Venture Capitalists

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Over the last couple of decades, venture capital has emerged as one of the most important sources of financing for high-growth start-ups. Earlier, Anand Jayapalan had underlined how venture capital fuels entrepreneurship and boosts emerging companies. Typically, venture capitalists invest in high-growth start-up businesses or founders. Discerning investors may essentially pool their money to form venture capital (VC) funds and lend it to startups and emerging companies they believe can grow over the long run. Investing in venture capital generally involves high risk and potential rewards. Duties of venture capitalists may include:

  • Hunting for deals: The very first task faced by a VC is to connect with start-ups that are looking for funding. In the industry this process is known as “generating deal flow.” High quality deal flow is extremely important for enjoying strong returns. Usually, the best deals come from the trusted network of investors, entrepreneurs and colleagues a venture capitalist may have. Help from industry experts and trusted advisors are useful in identifying the best opportunities and then narrowing them down for quality.”
  • Narrowing the funnel: Even if a startup founder does gain access to a VC, they do not always have high odds of securing funding. In fact, most VCs reject far more deals than they accept. However, many VCs can also be fairly aggressive if they find a company they like. Power dynamics in the setting can flip if VCs become excited about a start-up, especially of the company has offers from other investors. In the current landscape, startups with high potential often have intense competition to fund them. To win such opportunities, VCs must have a clear idea about how they can provide real venture assistance and explore bold visions.  When it comes to searching for opportunities, VCs typically favor either the “jockey” or the “horse.” The entrepreneurial team is known as the jockey, and the strategy and business model of the startup is the horse.
  • After the handshake: The VC term sheet is often designed to make sure that the entrepreneur will do well financially if they perform appropriately, but the investors can take control of the business if the entrepreneur is not able to deliver. This is done with the help of careful allocation of cash flow rights, control rights, liquidation rights, as well as employment terms. Basically, deals are structured in a manner that startup owners who hit specific milestones are able to retain control and enjoy monetary benefits. However, in case they do miss those milestones, the VCs may bring in new management and change the direction of the business.

Earlier, Anand Jayapalan had spoken about how the VCs often roll up their sleeves and become active advisers after they put money into a company. They can provide a variety of post-investment services to the startups. These services can range from strategic and operational guidance to help in hiring board members and employees. They can also help establish connections with other investors. Intensive advisory activities are often known to be the main mechanism VCs use to add value to their portfolio companies.

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