By: Michael E. Martinez

Venture capitalists are a source of long term financing especially to new companies. They raise money from wealthy individuals and institutional investors; they invest those funds in promising firms. They also provide management consultant, advice as well as funds. In exchange for their investment, venture capitalists become part owners. Venture capital is capital provided by outside sources for financing of new, growing or struggling businesses.

A venture capitalist is a person that makes those investments; a venture capital fund is a pooled investment vehicle that invests the financial capital of third party investors of enterprises that are too risky for bank loans. This might be good for a company that's having trouble getting a small business loan from the SBA or banks. I think it would be a good idea to find an outside investor to help an idea grow and along the way, you still have your interest in the company.

Investors in venture capital funds are usually large institution with large amounts of available capital such as insurance companies. Small companies tend to thrive or fail with their first initial business contacts, if they don't make it then by that time new technology and people with new ideas are already on the front. Sometimes its best to reassess and let a venture capitalist come in and help save your business.

Investments by a venture capital fund can also take the form of preferred stock equities or they can come in and take care of the company's debts by obligations. Sometimes an investment can include a planned exit event; which would be when an investment firm would come in, pay your debt, make their profit and then exit in several years, as if your company were a stock that they were selling. Most venture capitalists are most interested in ventures with high growth potential, because of that, most venture funding goes into companies with fast growing technology and life sciences or biotech fields.

Venture capitalists hope to sell their stock, options, or other forms of equity in three to seven years or after an exit event, this is called harvesting. They know that not all their investments will pay off but if a venture fails, then the entire funding by the venture capitalist is written off. So, your company may not succeed but with a venture capitalist coming in to try to save it, at least you would have a chance. Some venture capitalists work on the assumption that for every ten investments they make, two will fail, two will be successful and six will be marginally successful. In a good investment, the funds may offer returns of 300% to 1,000% to investors.

By this, I would be willing to retain the title of company founder and president with the hopes that this investment firm will help my company to grow and exceed my expectations. American banks in the 1930s had no private merchant banking industries in the United States, U.S. investment banks were confined to handling large M&A (Merger and Acquisition) transactions. The late 1990s, because of the dot com boom, was a great time for venture capitalist firms. This was a time for venture capitalists to put their money into technology companies.