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A Day in the Life of a Venture Capitalist/ Investor

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.

Paying Your Dues

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.

Present and Future

In the 1950s and 1960s - the early days of venture capital investment – individual investors were the norm. While this type of individual investment did not totally disappear, the past few decades have seen the emergence of the venture firm, partnerships of venture capitalists looking to pool their money for even greater returns. As one financial analyst states, “In the last few years, individuals have again become a potent and increasingly larger part of the early stage start-up venture life cycle. These ‘angel investors’ will mentor a company and provide needed capital and expertise to help develop companies.” Over $100 billion was invested in 2000, compared to $70 billion in 1999. Some maintain that though the stock market is depressed, this is the best of times for venture capitalists. “Not only are valuations low because the stock market is low, but many talented people are looking for work - and it's easier to motivate employees who are happy to have a job to build a new company.”

Quality of Life

PRESENT AND FUTURE

Whether in a firm or individually, venture capitalists invest depending on their current wealth. For the first year or so, the smart venture capitalists are investigating hundreds of opportunities to invest their money.

FIVE YEARS OUT

This is about the time that a venture capitalist’s first investments start paying off. The amount of returns may encourage, or discourage a venture capitalist from continuing to invest their money in new and established businesses.

TEN YEARS OUT

Venture Capitalists in business for over ten years have seen their returns from many of their investments, and probably taken a few loses. They are still as picky about where their money goes as they were when they started out. With the experience though, most venture capitalists that have been in the business this long have an easier time finding the investment that can return an average of $10 for every $1 invested.