Venture Capital Investment

The decision to participate in a venture capital investment is not one to be taken lightly. Most everyday investors looking for a relatively stable rate of return should stay away from these types of investments. Although there are many things that a successful venture capital firm can do to protect their investors, the risk of loss is huge, and could be potentially devastating.

Of course, the upside of venture capital investment is the potential for growth. A successful venture can offer a 1,000 percent return on an initial investment. That number is actually a little inflated, though, when you factor in losses from other, less successful, ventures. The goal of a successful venture capital firm is to negate the losses and still end up with a nice percentage of profit.

Venture capital firms are set up as pooled investments. They invest a collective group of money into a collective group of investments. Each venture capital firm consists of two types of partners. Starting out in venture capitalism, you will probably be a limited partner. The limited partner only puts forward the money. If you have specific industry experience, or have been in venture capitalism for a while, you may become a general partner. A general partner manages the fund and makes investment decisions.

A venture capital firm becomes a part owner of any company it invests in. The firm normally will fill several positions within the company and have a place on the board of directors. This is another way that a venture capital group reduces its risk and helps ensure some level of control over the investment.