Key Characteristics of Venture Investment
What it means:
• Venture investments are considered very risky because most startups don’t succeed. Investors might lose all the money they put in.
• Unlike money in a bank or stocks you can sell anytime, venture investments are illiquid, meaning investors can’t take their money out until a major event happens (like the startup being sold or going public).
Why it matters:
Investors need to carefully choose startups they believe have a high chance of success because their money will be "locked" for years.
What it means:
• Startups need to show they can grow quickly and reach many customers (this is called scalability).
• Investors want to see potential for big growth because it means more people will want to buy the company later, leading to higher returns for the investors.
Example:
Imagine a coffee shop that serves one neighborhood versus a coffee brand that could open thousands of locations worldwide. The second option is scalable, so investors prefer it.
What it means:
• Venture Capital (VC) funds work on a timeline, usually 10 years.
• In the first 5 years, they invest in startups.
• In the last 5 years, they focus on helping those startups grow and eventually sell (called "exits") to make a profit.
Why it matters:
Startups need to show how they’ll grow quickly enough to give investors a return before the fund’s timeline ends.
What it means:
• Investors make money when a startup has an "exit."
• Common exits include:
- Being bought by another company.
- Going public on the stock market (called an IPO).
Why it matters:
Without a clear plan for an exit, investors won’t see how they’ll get their money back.
What it means:
Angel investors are individuals using their own money to invest in startups, often in the early stages.
Venture capitalists (VCs) use money from groups of investors (like institutions or wealthy individuals) to invest larger amounts in startups.
Why it matters:
Understanding who you’re pitching to (angels or VCs) helps you tailor your pitch to their preferences.
