Venture Financing





Venture Capital Basics

Investor Returns, Timing, Cost of Capital





Rates of Return and Investment Periods

Each stage has its own set of funding criteria and its own group of individuals who work in that field. The earlier the financing stage, the greater the risk, the greater expected return, and the greater percentage private investors and venture capitalists will request. Sometimes the investor will require control of up to 80% of the company.




Entrepreneurs, however, are usually given the opportunity to earn back controlling interest if certain milestones and performance standards are met.

Also, the earlier the stage, the more difficulty will be encountered in raising the initial capital. It may take six months to a year to locate the proper partner for your business.




General guidelines for venture capital investment returns are:

Start ups, 10-12 times return in 5-7 years.

Existing early stage companies, 5-7 times investment in 4-5 years.

Why are expected returns so high?





Quite simply because of all the non-performing investments, or losses and the lack of liquidity and the availability of other opportunities. The compounded Venture Capital Return Rate over many years is approximately 17.8%.


Enemies of Startups

5 Risks

9 Maxims of Venturing




In order for a Venture Fund to be profitable, it must assume at least 50% of its investments will at best make only a small profit. Approximately 25% of the investments will be sold or liquidated. Of the remaining 25%, about half will go public and generate compounded returns exceeding 60-120%. For a portfolio of 20 companies, only one will be a "rocket" or "home run" and provide the 10 - 100 times Return on Investment that everyone is looking for.

Valuations and due diligence should be made by both parties in order to accurately determine the amount and type of debt and equity that will optimize the investment for both the venturepreneur and the VC investor. Follow-on stages of financing should also be considered. The importance of the cost of capital and the eventual amount of equity dilution to you and your initial shareholders cannot be overstated.

Besides Venture Capital, there are more than 30 methods of funding your business that do not require venture capital to finance your operations.

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Getting Funding for Your Startup

Real Ways to Finance Your Startup

Ideas for Funding Your Startup Business



Vadim Kotelnikov

Give innovative entrepreneurs a venture capital fund, and you'll feed few of them for a while. Give innovative entrepreneurs Innompic Games, and you'll feed all of them for centuries ahead!

Vadim Kotelnikov, founder of 1000ventures - personal logo VadiK

Inventor Business e-Coach

Author Innoball

Founder Innompic Games icon