Venture capitalists may have been entrepreneurs themselves who are now helping newer companies achieve success in return for large equity positions in the business.
They may also work for investment banks. They form firms which manage a portfolio of venture capital investments. Venture capitalists are firms whose business model is to infuse money into companies which do not have access to the capital markets, or do not want to turn to the open market, in return for equity in the business.
The use their experience in the industry, or just vigorous research, along with their financial resources and know-how, to find small companies who only need more money and perhaps some coaching to become significantly more profitable in a few years.
When venture capitalists invest money in a start-up or relatively young company, one or several venture capitalists will be on the board of directors of that start-up company, and they may take a hands-on role with the company’s management to try to ensure a return on investment.
They may also prevent a company from selling out for less than they would like, even if the founders of the company think it is a good deal.
Obviously we are talking about very large sums of money being moved around, and, because these arrangements are private in nature you are not likely to know much about a VC firm or their investors unless you are actively participating in their sphere.
Venture capitalists may be even more secretive than hedge fund managers, and you will have a hard time recognizing one on the street.
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