If you are a startup owner, you must know what helps it make a complete project. Some of the essential elements that are inevitable are an owner with experience, knowledge, and risk-taking ability, funds, a good team, and market persistent product. Bear this in mind, even if you are a startup owner, you can be an investor, a venture capitalist, or crowdfunding.
Among these elements, the uncertainty most experienced will be with funds and products. There are a lot of options for funding like angel investors, venture capital, crowdfunding, bank loans, and peer-to-peer lending. The choice of funding you opt for will help you get the funds in its way.
But if you are an investor, you are completely on the opposite side of the table. If you are someone who wishes to invest in a startup and be a part of the change, you have to be even more cautious. With money or experience to invest, you also have a long list of checklists to cross before investing. You have to check the credibility of the start owner, market capture strategy, product understanding and consumer connection, and a lot of other things.
Here’s an understanding of what is your role as a venture capitalist & how it works.
What is a venture capitalist?
A venture capitalist (VC) is a person or organization that provides capital to start-ups and companies in the process of expanding. Such companies are of interest to venture capitalists since they can generate significant returns on investment (ROI) if they succeed.
What is a venture capitalist firm?
A venture capital firm’s primary objective is to create wealth for its shareholders (investors) and its management (investment team). The firm essentially acts as an investment vehicle. In exchange for investment, these firms acquire ownership stakes in high-growth potential startups. Investments are only made in businesses that have significant potential for growth over time.
The risk associated with such investments is high. Since the investment will lose value if the startup fails, and since startups do not have fixed assets, these investments are highly illiquid. The return, however, can be great if everything goes according to plan. So owning a venture capital firm has its perks.
How to set up a venture capital firm?
Build a track record
Developing a credible track record is the first step. If you have never invested well, no one would give you funds to invest. The best way to start investing high value is to get started at a venture capital firm.
If you already have built a decent track record then there are two different paths that you can follow-
The first is to start small. Become an angel investor, and make some good investments. After establishing yourself as an angel investor, try raising a small fund. Target HNIs to raise the fund, it can be anywhere from $1mn to $20mn.
The second option is to get into a partnership with someone who is already an experienced venture capitalist. They usually are the ones who invest and act as the ones handling operations.
Get a license
You must first be eligible to start a venture capital firm. A license must be obtained from the Securities and Exchange Board of India (SEBI), which is the only authority that issues licenses.
Criteria for eligibility
Following are the main eligibility criteria for setting up a venture capital firm under SEBI (Venture Capital Funds) Regulations, 1996:
1. For a Company:
- There should be a provision for the continuation of its activity as a venture capital fund in the Memorandum of Association;
- Its articles of association and memorandum prohibit it from inviting the public to subscribe to its securities;
- The applicant’s director or principal officer or employee is not involved in any litigation involving securities that could adversely affect the applicant’s business;
- Directors, officers, or employees have never been convicted of moral turpitude or economic crimes;
- It is a fit and proper person
2. Being a VC
- Business: Putting resources into a business or an organization financial backers ought to have the option to pursue the field-tested strategy and skill to gauge the market. Along these lines, you go with a reasonable choice.
- Experience: It is the most ideal sort of instruction. Experienced business people settle on the most ideal choice as they probably are aware of the gamble related to new companies. They can offer the best guidance and a couple of questions that should be kept away from.
- Entrepreneurs: It is the most challenging channel as it’s difficult to raise cash. The entrepreneurs can start with a small investment, save some money/profit and invest in a new venture.
- Mentors: Finding an experienced and excellent mentor to teach the investors everything that they should know about venture capital is essential.
Becoming a Venture capitalist is a process. It requires experience and a lot of nourishment which will help grow the startup you are venturing into.
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