Picture that you’re waiting in line for your coffee order and inadvertently overhear someone ask, “What do you do for a living?”
The next thing you hear is someone saying they’re a venture capitalist. Immediately, your ears perk up, and you’re being that guy. You’ve heard this term a thousand times but aren’t sure what it’s all about. However, you do know that people who are venture capitalists are a type of investor. Regardless, you may have decided that you want to try it out for yourself. If that’s the case, you need to know exactly what you’re getting into. In this article, we’ll be going over what you need to know about becoming a venture capitalist.
What is a Venture Capitalist?
A venture capitalist is an investor that specializes in funding new companies, like startups, to help them find their footing. You might be a little confused on how this could be profitable. After all, small companies and startups don’t generally have that much money or reputation. Funny enough, this is exactly why venture capitalism can be significantly lucrative. New companies have a very high chance of performing well with the right investors behind them. In turn, this can net you a pretty good ROI in the long run.
What it Takes to Become a Venture Capitalist
Becoming a venture capitalist is far from a bad decision. However, it will require a lot of effort on your end. Investments, regardless of what they’re for, can be tricky to handle at times. It may sound daunting, but one wrong move and the entire excursion can fall apart. When it comes to venture capitalism, it’s crucial for you to learn everything you can. Getting at least a BA in business or finances is a great place to start. Having hands-on experience with business and finances are also important. As you would expect, you’re going to need a good amount of funds before investing. However, you don’t need to have millions to invest. You generally need at least a few hundred thousand on average.
You Need to Protect Yourself
As with any investment, there are risks you need to be careful of. We’ll go over those risks a little bit later, so we’re going to cover how you can protect yourself as a venture capitalist. The first step is to always have plan B. Backup plans are fail-safes that we use in the event of our primary plan failing. In the world of investments, it pays to be ready for anything. Always make sure you have a lump sum of money on the back burner just in case you suffer a loss. If you have a family, protecting them is equally important. To make sure they’re covered, it’ll help if you purchase a life insurance policy.
The Navient Marketplace is one of the top marketplaces with partnerships where you can compare the rates. Life insurance rates can be expensive, but comparing rates with various companies, you’ll be able to find the right policy for the lowest price. Protecting yourself as an investor also means knowing when to decline and back out of deals. In the case of venture capitalism, if a business seems like it’s not performing well, backing out can save you a lot of money. It may be a hard decision because you don’t want the business in question to fail. However, remember that it isn’t personal; it’s just business. The same applies to if a company doesn’t have a decent chance of making a profit.
The Potential Risks of Venture Capitalism
Now, let’s talk about the risks you can potentially face when participating in this investment. The first one involves your team. Every venture capitalist isn’t going solo; they have an established team involved in the process as well. Your success hinges on your team, and if the team isn’t producing enough, it can cause a lot of problems. You must make sure your team is filled with those who know what they’re doing and are passionate about it.
The second risk involves the market trends. It’s always in every investor’s best interest to scour the web for the latest market trends. Keeping up to date with what’s currently buzzing is how you can increase your chance of success. The risk involved with this is the potential factor. Just because a trend is booming doesn’t mean it’s always going to be a success. Sure, taking risks is a necessary task, but you need to know when it’s best to take it. Always do your research surrounding a trending company before going for it.