Monies which are invested in a commercial venture with a highly uncertain chance of success are called risk capital.
A venture capitalist is an investor who either provides this risk capital to startup ventures or supports small companies that wish to expand but do not have access to the equity markets.
Venture capitalists are willing to invest in such companies because they can earn a massive return on their investments if these companies are a success. They also experience major losses when the startup they invest in fails, but venture capitalists are wealthy enough to take risks associated with funding unproven companies that appear to have a great idea and a great management team.
A venture capitalist is an individual who makes investments in business ventures and provides capital for a start-up or an expansion. Venture capitalists by virtue of venture capital seek a higher rate of return than would be expected or given from traditional kinds of investments. Usually venture capitalists look for 25% returns and higher in exchange of funds.
In addition to funds provided, they also provide much needed expertise by providing knowledge, expertise and experience in business management to mentor and nurture companies for the growth of their business which can vary between 3 and 7 years.
The failure rate of venture capitalists investment in startups is usually very high and can range between 20 to 90 percent thereby putting them into a huge loss of their investments.
What Venture Capitalists look out for before investing in a startup?
• Company Vision
• Existing Problem
• Solution
• Team
• Timing
• Market Size
• Competitors
• Marketing Strategy
• Budget /Purpose of Fundraising Round
• Timeline
• Business Model
• Others
List of Venture capital firms that have invested in Nigerian companies include US-based Tiger Global who invested in Jobberman.
Rocket Internet has invested in Jumia, Easy Taxi, Kaymu and Jovago.