If You Know Nothing About Venture Capital, Watch This First | Forbes

venture capital is something you hear about all the time in tech but do you know what it is or how it works could you explain it to people at a party well if not we got you venture capital is money that is provided by investors to startups that have the potential to reshape markets and grow very fast the money deployed by a VC firm usually comes from institutional investors corporations or wealthy individuals looking to make some serious dough let's say Jayne and Brian have a camera app that's getting a lot of customers and media attention they know their little company could be ballin one day but the banks are hesitant to lend the money because they think it's too risky but Marcus a successful VC looks at what Jayne and Brian have done and thinks the benefits outweigh the risks he gets to know the to learns about their product reads the business plan and finds out how much they've done so far Marcus likes what he sees and decides to invest in Jayne and Brian's company he does the same in varying amounts to other startups with similar potential because in the VC game you need a back-up plan about three out of every four startups fail so VC has to make sure the projects that do make money make enough of it to cover the losses of the failures they also have to make sure that the parties who back them get a healthy return on their investment even with the risks VCS love tech startups because of their ability to scale easily as for how much money Jayne and Brian would get that depends on where their company is at seed funding is at the earliest stage basically something to get the party going Series A is for when the company has established product and market fit started to make some serious buzz and its customer base is growing fast Series B is when the company has started to make some considerable revenue in select markets and is looking to expand operations Series C and onwards is when the company has grown up and is likely operating on a global scale it may be ready for an IPO to be bought out by another company or continue operating as a private firm so let's say Jayne and Brian have stayed in the game gone through Series C and are now ready for the next step they decide to IPO making their company public on the stock market that goes well and Marcus sees a nice return on his initial investment so there you have it venture capital is a high-risk high-reward game that funds innovative ideas and keeps the tech world going

Channel: Forbes

Views: 309,999

Keywords: Forbes, Forbes Media, Forbes Magazine, Forbes Digital, Business, Finance, Entrepreneurship, Technology, Investing, Personal Finance, Venture, Capital, Investments, Midas

Id: a4aUX5u90oA

Length: 2min 22sec (142 seconds)

Published: Wed Mar 23 2016