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Getting a Jump Start on Startup Funding: An Intro to Venture Capital

February 17, 2017

  • A ‘unicorn’ is a startup with a $1 billion valuation
  • Angel investors and venture capitalists are two types of investors
1 min read

Do you know what Venture Capital firms are?

If you do, congrats! You are up on the startup lingo. If you’re not in the startup and corporate world, you may not be as familiar. But we’re here to help.

Venture capital (or VC) is financing that investors provide to entrepreneurs or small businesses that they believe have high growth potential. If you’re familiar with a little company called Facebook, you should know that venture capitalists were behind the growth of that company. Facebook received several rounds of funding to help it grow. But why does a company like Facebook need VC funding? Because in order for Facebook to become Facebook, they need to put money towards marketing, acquisition, hiring new talented employees, and using advanced technologies.

There are several types of investors

Angel investors and venture capitalists are two types of investors that are common in the startup ecosystem.

An angel investor is typically a high net worth individual that is using their own funds to invest. This type of investor tends to be involved in the early stages of a company. Why? Because that’s when it’s cheap! An angel investor can invest a few hundred thousand dollars in a company, before it receives millions of dollars from venture capital firms.

An angel investor is typically a high net worth individual that is using their own funds to invest.

A venture capitalist works at a Venture Capital firm and uses a firm’s funds to invest in a company. Depending on their firm, they may be involved at any stage of a company’s funding. What matters most for them is that they want to see promising growth before investing.

Venture capitalists and angel investors are also investing in entire industries. For example, when a Venture Capitalist invested in Facebook in its early stages, they were also investing in the social media industry and its future growth. Facebook is a giant in the social media industry, but its relevance is also dependent on the growth of the social media industry as a whole. Venture Capitalists focus not just on the strength of the individual company they are investing in, but also the strength of the industry — and the role that the company will have in that industry.

Knowledge DROP

Here are some whimsical industry terms to know, and these are 100% legit:

venture capital

 

By Anneliese Klein-Pineda

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The investment programs of venture capital funds, more generally private equity funds, entail substantial risks and include alternative investment techniques not employed by traditional exchanged-traded funds and mutual funds. Investors may lose part or all the principal of an investment or an investment may not perform as well as other similar investments. Venture capital is not suitable for all investors, is typically subject to high minimum investments, and should be viewed only as part of an overall investment program. No assurance can be given that a private equity investment program will be successful. Any decision to invest in a venture capital fund should take into account that the fund may make virtually any kind of investment, and be subject to related risks, which can be substantial. Stash does not make available to its clients any kind of venture capital fund.

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