By Arjun Chandrasekar.
Summary
VC, or Venture Capital, is a variation or better known as a subset of private equity that provides financial support to startups and small businesses in which they see potential in. VC can come from angel investors, VC funds, financial institutions, or investment firms. Some of these small companies’ industries include EV, biotechnology, sustainable energy, and much more. Usually this financial support comes from rich investors to essentially aid in growing the company they choose monetarily. Venture capitalists see this as an incentive to become richer as the growth potential of these companies can provide high returns right to their pockets. But all the less, it is still risky, as they say “90% of startups fail.” However, even due to this high uncertainty, with the right financial support and the right ideas, the return rates for venture capitalists are incredible, which is why so many people go into the sector.
History
The concept of VC is known to have begun after World War II, and was solely accessible to extremely rich families thus it wasn’t very popular until Georges Doriot came into play. He started the first known VC firm called the American Research and Development Corporation. His goal was to raise enough money, $3 million plus, to provide financial support to military weapons and technology during the war. For example, one of the documented investments was for building an X-ray for doctors to investigate a treatment for cancer. VCs are also very well known for investing into the technologies we see today. We know that technology has kept on improving and innovating, from the first flip phone to the Iphone 12, or the customization of AI and machine learning. But the companies that produce these innovations wouldn’t be able to without the financial support of venture capitalists and investors. The VC sector has kept developing and expanding across the world, and is extremely popular today.
Why VC?
VC is a popular option for startups and new businesses as it’s a great source for raising company capital. However, the executives receive less stakes in the company in part as the venture capitalists are contracted to own a sizable stake plus they become part of the executive board, and thus are allowed to make company decisions. Regardless, most venture capitalists come in with substantial knowledge of the industry they’re interested in investing in, so business owners don’t have to worry about major mistakes happening, as the entire point of VC is to provide great support. Venture capitalists generally choose companies with unique solutions to modern day problems, as these companies, if driven with the correct motives, can rapidly be scaled grandly and provide higher return rates for them. But this is not always the case as there are many existing companies that have seen outstanding growth rates which these venture capitalists believe can be scaled even more with their support. So there are quite a bit of options for venture capitalists to choose where to provide their financial and decision-making support, which is another reason why the idea is very popular.
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