Venture capital

I've been a venture capitalist for 40 years. Everyone in the industry has his/her own definition of what venture capital is. Frequently people confuse venture capital with seed capital, with private equity investment, with angel investors, with just straight equity investment. Truthfully, to me they all overlap to a certain extent. Over the years venture capital has changed due to a dearth of capital to significant availability of capital. Everything goes in cycles and the venture capital industry is no different.

Venture capital is a type of private equity, a form of financing that is given to early stage, emerging firms that are invariably on the cusp of high growth or have demonstrated high growth. They are frequently in the new technologies, but they are not limited to any industry — it is much more important to concentrate on the goals and aspirations of the company and the inspiring management. Venture capitalists buy a percentage of the company and support the entrepreneur and the management team, whereas private equity more than frequently buy 100% ownership of the company in which they invest. There has also been much discussion about the difference between venture capitalists and angel investors, and to the best of my knowledge the difference is mainly that venture capitalists operate through a company/firm and may use other people's money and frequently do, whereas an angel investor will be an individual, often a high net worth individual who is diversifying his portfolio or stretching his business opportunities.

I like to think of a venture capitalist as a person who hears and understands the dreams of other business professionals and tries to help that business professional achieve their dream. The role of the venture capitalist is in my opinion to support the entrepreneur with capital and advice. Frequently the entrepreneur believes he just requires the capital but more often than not the advice is equally as important. The correct capital structure, the correct management structure, proper financial controls, introductions, advice, experience and to be a valuable, well-intentioned and up-to-date sounding board.

Every venture capitalist has his own formula; for me the management is the number one concern, followed by the industry, followed by the details of the company. A number of venture capitalists like to have a five-year time horizon for the business to mature and then be sold or listed or merged. My experience is that to build a great company requires longer than five years and I do not like to place a time period on what is a most difficult undertaking — that being the establishment and profit creation of an idea into a business.