In the following sections, we have listed the necessary information regarding venture capital, its background, and the processes involved.
What Is Venture Capital?
Venture Capital is the act of funding new ventures or a small company, in most cases, a startup with great growth potential. Since the potential outcome is still uncertain, new ventures involve risks.
While business founders usually perform most tasks, it’s common for Venture Capitalists to get involved. The way a Venture Capitalist (VC) is involved in a startup or company is a bit different from other forms of investments. Monetary funding is mostly the case, where founders will ask for funding with solid sales figures, and the VC will buy shares. But there are cases where founders only seek and VCs only provide advice, guidance, or business knowledge. The founders will bring forward their ideas, talent, or prototypes to the VC. And the VC will help the company grow, hire, plan, and reach new markets. Then it’s more like hands-on funding.
In most cases, Venture Capital is a term famous for technology-based companies. For instance, in San Francisco, California, a place called Silicon Valley, Venture Capitalists play significant roles in different areas. As such, VCs are places to go for when a brilliant young engineer has an idea with a friend, colleague, or roommate.
Typically, investors are joined in a Venture Capitalist firm. While many VCs are known for tech-related companies, there are others covering different industries. Companies like Allbirds, Vessi, and Manscaped are famous brands that started with a Venture Capitalist’s help. While these companies differ in products, revenue stream, and tasks, they all go through the same process. You will find more information on that process in this article.
Why Startups Seek VC Funding
Startups seek VC firms’ funding due to their openness to new ideas, technology, and willingness to take a gamble with a new venture. Also, since these investors are experts and have met and invested in similar companies before, it’s easier to explain details and business models. Apart from funds, entrepreneurs also love to receive investors’ guidance for their launch, operation, revenue streams, and many other things. Besides, as VCs are highly knowledgeable and have many connections in the industry, they can help startups to grow and sustain their business in the long run.
While solo investors or funding companies exist, VCs are the ideal place if one wants the experience, the network, and higher chances of approval. In the early days, a startups’ main goal was to launch and sustain for years to come. However, given how frequently major companies acquire or absorb smaller ones, founders nowadays aim for more users or customers to gain traction for an acquisition. Considering this, founders seek VCs funding not only for funds but also to adapt and compete better in their respective industries.
The Venture Capital Process
Venture Capital funding has a thorough process containing the following stages.
1. Pitch, Evaluate, and Meet
In the first stage, founders submit their business plan, pitch their idea, and deliberate with the VC. If approved, they would have to attend follow-up meetings and discussions.
When the VC panel approves, the VC will typically want to meet the companies management. After that, the VC will invest money in the company based on the agreed terms.
After investing, the VC will stay in touch with the company. In detail, it can have a seat on the board and advise the company to come up with effective business decisions. Also, employing the VC’s connections to other firms or entrepreneurs will help the company grow.
Finally, the VC will participate in an IPO or Initial Public Offering or will assist in the process of selling to or merging the company with a potential buyer.
Peak Capital: Venture Capital Firm From The Netherlands
We invest smart capital in fast-growing highly-scalable marketplaces, SaaS or data startups in the European Marketplace, to accelerate their growth. Our focus has been on the Benelux, DACH (Venture Capital Germany, Austria and Switzerland) and the Nordic regions (such as Denmark, Sweden, Norway, Finland). Via our network and experience, we provide hands-on support to our portfolio companies. Whether it’s support with hiring the right sales employees, making the right online marketing choices, or raising a follow-up round, we contribute to our portfolio companies.
- Are you looking for venture capital to fund your company? Contact us here.
- Are you looking for a job at our venture capital firm or one of our portfolio companies? Check out our job board.
History of Venture Capital
In 1840, many Britain citizens bought public shares from a newly built railroad. However, investors lost their money while Victorian Britain seized the railroads. In 1946, famous Harvard professor George Doriot founded the American Research and Development Corporation (ARD). George was actually born in France and enlisted in the US military, but later became known as the “Father of Venture Capital.”
The American Research and Development Corporation invested in the Digital Equipment Corporation. It was in 1957 that Venture Capital and the electronics and computer industry first met. In 1959, Fairchild Semiconductor was the first startup launched with VC help. Next, Northleaf, a VC firm, invested in a company in 1969. As time passed, Northleaf held the longest-running firm’s record to offer investments.
In 1970, Venture Capital firms started covering more grounds, including personal computing, and led the VC sector to become a sector class. Along with other independent firms, a prominent VC called Sequoia, launched in 1972. In 1978, the Venture Capital space reached its most important year, where companies raised around $750 million. Starting in 1980, VC firms helped many major technology companies like Apple Inc., Compaq, Electronic Arts, and Genentech.
In the late 90s better known as the dot-com bubble, there was an overflow of cash in Silicon Valley, San Francisco, California. Consequently, VCs quickly invested in startups, even those showing little promise. In the end, the results became more and more unfortunate, and therefore VCs came up with more effective investment methods.