Venture Capitalists are professional investors who commit money, time and energy to help a start up succeed. Venture Capitalists typically review hundreds of business plans every year. Therefore the business plan presented by any given startup would have to provide confidence to the Venture Capitalists that the management of the startup have the expertise to achieve the goals within the stipulated time.
Venture Capital is good for startups with limited operating history that are too small to raise capital in the public markets and unable to secure a bank loan or complete a debt offering.
- Venture Capitalists take an active role in the functioning of the business.
- Venture capitalists differ with other investors in their ability to bring both money and experience.
- Venture Capitalists are in it for profit. By helping the start up to succeed, the value of the venture capitalists investment goes up. The higher they can drive the value, the more money they make.
To achieve this, venture capitalists:
- seek businesses with developed products or services.
- actively control the functioning of the business.
- provide management and technical expertise.
- bring in business contacts and joint venture partners.
Venture Capitalists invest in high return sectors such as technology, genetic engineering, biotechnology and medicine. They target companies with the potential to become Multimillion Dollar Companies in 5-7 years.
Investments by Venture Capitalists
- Typically an investment lasts between 2-5 years and Venture Capitalists are usually prepared to buy a 40-50% stake in the business.
- Venture Capitalists expect a return on their investment of at least 30% for every year invested.
- When Venture Capitalists encash, they take away a huge share of the profits with them.
- Venture Capitalists exit when the business is listed on the stock exchange or when they receive an attractive offer for their shares.
Sources of Venture Capital Funds
- The Singapore Government has been encouraging venture capital investments and activities since the 1990s.Currently there is a wide range of venture funds available.
- It is important to find the right investor, one with a genuine interest in the industry. For e.g Bio Veda Capital is only interested in investing in the biotechnology or healthcare businesses.
Deal Makers
Although the venture capitalists can be approached directly for funding, it is advisable to seek professional guidance to identify a venture capitalist that suits the startups needs. Dealmakers are intermediates having contact with Venture Capitalists, who mediate between the VC's and start ups.
It is the leading credit and business information bureau. At present it serves 95% of Singapore's financial institutions and 75% of the prominent law firms. The Deal Flow Connection matches businesses with investors and potential sources of funds through intermediaries (middlemen). Through the intermediaries, enterprises can receive assistance
The Singapore Venture Capital & Private Equity Association (SVCA) was formed in 1992 under the patronage of the Economic Development Board to promote and foster the growth in this sector. SVCA is a non-profit, private sector initiative to Promote, develop and maintain the local VC and PE industry as a source of equity finance.
