Are you looking for ways to build your wealth over the long term? Consider building your portfolio by investing in a venture capital investment. Investors contribute their money to venture capital funds knowing it could take between five to ten years to see any kind of return. Before placing money in a venture capital investment, here are some facts you should know.
Peter Comisar says the purpose of venture capital funds is to finance companies in the early stage of their development. Equity firms frequently get proposals from individuals with an idea for a business and are seeking funds. They apply to equity firms instead of traditional banks when they want to avoid high-interest rates.
1. It is a Private Equity Investment Method
With private equity, businesses can get funds without going public and offering stocks on the market. They don’t have to make full disclosure of their business dealings, so it’s up to you to do your research before investing in one of these funds. Don’t delay doing your due diligence!
2. It is Normally Open to Accredited Investors Only
Most venture capital investments are only open to those who have a substantial amount of wealth and who can contribute the equivalent or more of what a middle-class wage earner gets in a year. Moreover, such investors must usually be accredited, meaning they can take on high-risk investments without going bankrupt.
If you don’t have those kinds of funds, you can still invest in venture capital through crowdfunding, meaning you invest with a “crowd” of others. You won’t need to own or contribute nearly as much.
3. It is for Companies With Growth Potential
In order to qualify for money from a venture capital fund, a potential business owner must demonstrate that their business proposal is a sound one and that they have a real potential for making a good profit within a few years. The equity firm won’t be looking for instant returns but does expect to see a profit within a few years.
4. It is a Risky Investment
Everyone involved hopes the business they are funding is a smashing success, but sometimes that isn’t the case. Because investors subsidize heavily in venture capital funds, they stand to lose a lot of money if the business fails. On the other hand, they could make a lot of money if the business is successful.
VC also comes down to a numbers game. If you invest in 100 startups and 1 of them becomes a unicorn (billion dollar valuation company) then you will probably still make a massive profit, despite the performance of the other companies.
Remember these important facts the next time you consider investing in venture capital funds. While the risks are great, the rewards may be well worth it. If nothing is ventured, nothing is gained!