{"id":1482,"date":"2019-09-20T11:52:05","date_gmt":"2019-09-20T06:22:05","guid":{"rendered":"https:\/\/rzplearn.com\/?p=1482"},"modified":"2025-02-19T16:54:05","modified_gmt":"2025-02-19T11:24:05","slug":"venture-capitalists-funding-startups","status":"publish","type":"post","link":"https:\/\/razorpay.com\/learn\/venture-capitalists-funding-startups\/","title":{"rendered":"A Beginner’s Guide to Venture Capitalists"},"content":{"rendered":"

Venture capitalists are well-heeled investors that often invest their capital in businesses with indelible growth opportunities. The infused capital is called venture capital.\u00a0<\/span><\/p><\/blockquote>\n

\u00e2\u20ac\u0153One of the cautionary lessons of VC is, if you don\u2019t invest on the basis of serious flaws, you don\u2019t invest in most of the big winners.\u00e2\u20ac\u009d\u00a0<\/span><\/em><\/p>\n

\u00e2\u20ac\u2022Marc Andreessen<\/span><\/em><\/p>\n

When an entrepreneur initiates a project to seek, develop and validate a scalable business model<\/a> to fruition, it becomes a start-up. They also refer to new businesses that intend to grow beyond the tag of a founder, have employees, and rise.\u00a0<\/span><\/p>\n

But amidst all the hype and hoopla of being the boss and running your own company, a start-up needs money to kickstart.\u00a0<\/span><\/p>\n

Know how to register a startup in India<\/a>.<\/p>\n

So what do you do? You pitch your idea to certain people who remain behind the screen– decision-makers and risk-takers, who validate your business model. They are Venture Capitalists (VCs).<\/span><\/p>\n

Who are venture capitalists<\/b><\/h2>\n

Definition<\/span><\/i>: Well-heeled investors often invest their capital in businesses with indelible growth opportunities. The infused capital is called venture capital, and the investors are known as VCs.\u00a0<\/span><\/p>\n

By nature, VCs sail with risky investments or new businesses, which is adequate to hand-out high returns if they figure out the right venture.\u00a0<\/span><\/p>\n

Or there\u2019s also an amount of risk substantial enough to scare off banks!\u00a0<\/span><\/p>\n

To ensure the money is well spent, VCs have the authority to leverage crucial decisions of the companies they are investing in.<\/span><\/p>\n

Understanding venture capitalists<\/b><\/h2>\n

VCs are usually composed as limited partnerships where partners invest in the VC fund. It constitutes of a committee that is responsible for making investment decisions.\u00a0<\/span><\/p>\n

Here\u2019s an icebreaker: In contrary to popular opinion, VCs do not fund start-ups from the beginning. They often look for a strong management team and review the potential market, and unequalled products or services with a robust vying edge.<\/span><\/p>\n

Most VCs also give preference to industries that they are familiar with.<\/span><\/i><\/p>\n

After identifying the emerging and favourable companies, the assigned capital is distributed to fund the start-ups in exchange for a substantial stake of equity for a significant return on investment (ROI).\u00a0<\/span><\/p>\n

Later, the quintessential VC investment takes place after an initial \u00e2\u20ac\u02dcSeed Funding\u2019 round, which is called the Series A round.\u00a0\u00a0\u00a0<\/span><\/p>\n

The VCs provide this financing option in the interest of achieving a return through an eventual \u00e2\u20ac\u02dcExit\u2019 event.\u00a0<\/span><\/p>\n

Some of the well known VCs include Chriss Sacca, Twitter and Uber; Peter Theil, the co-founder of PayPal, Jeremy Levine, Facebook and Pinterest.\u00a0<\/span><\/p>\n

Not to be confused with Angel Investors<\/a>, also known as business angels–individuals who invest their wealth in a start-up. Whereas VCs are a group of financial specialists or organisations.\u00a0<\/span><\/p>\n

Let\u2019s dig deeper!<\/span><\/p>\n

Difference between angel investors and VCs<\/b><\/h2>\n

Knowing the distinction between angel investors and venture capital investors is necessary to make the right decision for your business going forward.\u00a0<\/span><\/p>\n

 <\/p>\n\n\n\n\n\n\n\n\n
\n

VCs<\/strong><\/p>\n<\/td>\n

\n

Angel Investors<\/strong><\/p>\n<\/td>\n<\/tr>\n

VCs are part of an organisation\u00a0<\/span><\/td>\nAngel investors work alone<\/span><\/td>\n<\/tr>\n
Investment can range from a few million to tens of millions<\/span><\/td>\nLimited financial capabilities\u00a0<\/span><\/td>\n<\/tr>\n
Comparatively less risky\u00a0<\/span><\/td>\nUncertain revenue stream\u00a0<\/span><\/td>\n<\/tr>\n
Depends on the focus of the firm and growth companies\u00a0<\/span><\/td>\nInvests in pre-revenue business<\/span><\/td>\n<\/tr>\n
Type of investment is through equity or convertible debt\u00a0<\/span><\/td>\nType of investment is through equity or SAFE\u00a0\u00a0<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Government regulations on funding from VCs<\/b><\/h2>\n

Yes, VCs and angel investors cover essential measure to support growth-stage startups, but there are government regulations that one must abide.\u00a0\u00a0<\/span><\/p>\n

Securities and Exchange Board of India (SEBI) is the regulatory body for VC firms or funds. Here are some of the amended regulations:\u00a0<\/span><\/p>\n