Got money? Okay, you don’t necessarily have to have money, in order to make money as a venture capitalist or investor, but it sure does help. So, here’s how it works. Inventor A has an idea for a product that will revolutionize the way we live, but they don’t have the money to get off the ground. Investor B has the money, and is looking for an idea that will make them even more cash. Investor B finances Investor A’s product. The product goes to market, everyone buys it, Investor B gets his or her money back plus interest and/or a cut of future profits. A good investment can turn a few thousand dollars into a few hundred thousand dollars. But not all investment opportunities are pots of gold. In fact, most rainbows disappear leaving investors out in the cold. Venture capitalist and investors need strong business backgrounds to be able to sort the golden investment opportunities from the chafe. Venture capitalists and investors are constantly being approached with ideas that need money. The investor has to know how to read business plans, understand how to read a company’s balance sheet, income statement, and shareholder’s reports. Some companies are in the startup phase when they approach investors, and don’t have this kind of information. Say someone comes to you with this great idea about a Web site that sells butterfly nets. You know butterfly nets are hot, every kid wants one, but the guy with the Web site idea has no idea how to spell HTML much less set up a store in cyber-space. You, being the savvy investor you are, wouldn’t sink a dime into that project. One survey found that in the recent business climate, investors typically reviewed 100 business plans before finding a potential investment opportunity with merit. Investors can finance everything from bull sperm farms to weekly newspapers to Hollywood movies. Instinct plays a role in how an investor chooses projects to fund. The business involves a little part crystal ball, a good part business sense, and a heaping dose of moxy. Some venture capitalists are in the game because of the risks. It’s legalized gambling. The rush can be intoxicating and the payoff can be sweet.
A college degree is not required, but most venture capitalists have a degree in business, many have their MBAs. Investing your money in a business or project in hopes of making a lot of money is, for the most part, a crapshoot. Some are going to come up sevens, but most are going to be snake eyes. You may lose a lot of money before you make a dime. Or you may hit it big with the first company you invest in. Research, research, research can make the difference, however, between becoming a Donald Trump or a Donald Chump.
Venture capitalists sometimes find themselves partners in new business they are funding. Most take an active role the businesses. A few, however, simply provide the funds and step aside, preferring to let the experts handle the day to day details of running their business.