A venture capitalist is a person who invests in a business venture, providing capital for start-up or expansion. Venture capitalists are looking for a higher rate of return than would be given by more traditional investments. Simply put, venture capital is other people's money. It is financing for new, usually high-risk start-up businesses just like the new product that you want to bring to market. There are a lot of well-known firms whose names you would recognize that were financed, when they were start-ups, by venture capital. One of them is Netscape Communications. They usually become involved in the business by lending their expertise in the hope of helping the business succeed. Their ultimate goal is to take the business public someday. As a result, they usually are not interested in a corner grocery store or Mom and Pop business. They look for small businesses with potential to grow larger.
Generally, venture capitalists are looking for returns of 25 percent and up. The directors of the company must then contact venture capital organisations, to try and find one or more which would be willing to offer finance. A venture capital organisation will only give funds to a company that it believes can succeed, and before it will make any definite offer, it will want from the company management:
a) a business plan
b) details of how much finance is needed and how it will be used
c) the most recent trading figures of the company, a balance sheet, a cash flow forecast and a profit forecast
d) details of the management team, with evidence of a wide range of management skills
e) details of major shareholders
f) details of the company's current banking arrangements and any other sources of finance
g) any sales literature or publicity material that the company has issued.
A high percentage of requests for venture capital are rejected on an initial screening, and only a small percentage of all requests survive both this screening and further