The complete guide to venture funds

Judy Rubio

Venture funds are time-proven means of the project funding. However, the term is still in a grey area for a lot of people. What are they, how do they work and what are they for? Let's deal with these issues together.

What are venture funds

A venture fund is a type of investment organization whose work is primarily associated with startups in the field of innovation. In the portfolio of such companies, venture capital investments should account for more than 90%. The funds solve the following tasks:

  • Accumulation of investors ' investments
  • Indirect management of a startup
  • Financing and assisting in the implementation of investment projects at each stage
  • Selection and in-depth research of innovative projects

When choosing objects for financial investments, the venture fund at the stage of initial selection of the application filters out 90% of proposals. This happens for the following reasons:

  • Incorrect business plans or documents with parameters and objectives, divorced from reality
  • inconsistency with the fund's investment policy
  • shortcomings in the development of documentation and queries

The remaining 10% of the proposals are sent to the stage of risk analysis and the reasonableness of investments. In the end, no more than 2% of applicants receive investments.

Procedure of venture fund activity

A financial institution usually goes through the following stages in its activity:

  1. Submission by the startup owner of the application for investment
  2. Comprehensive expert analysis
  3. Participants of the project contribute their part by "commitments" or cash
  4. The management company contributes the relevant share
  5. Development of organizational and legal framework for the project
  6. Consistent funding for different stages of the project. Funds receive the right to issue securities of the financed organizations.
  7. Control over the implementation of the project, its support for a period of 3 to 10 years.
  8. Sale of securities to a strategic investor, other shareholders, on the market or a financial investor.

Why is it profitable to invest through venture funds?

The investor receives undeniable advantages in cooperation with funds: 

  • Getting a backup.
  • Own team of experts.
  • The ability to invest large sums.
  • Strict control over the implementation of the project by the fund's experts.
  • Risk reduction due to 2-sided diversification of investment objects and investors. As a rule, in two or three years, the fund directs client funds to more than a dozen organizations.
  • Clearly established procedure for the analysis and determination of the object of investment.
  • Funds do not abandon projects at the sight of first problems, but provide them with assistance for a long time.

Venture funds help to mobilize investors ' money and competently form a portfolio of securities. Many private investors prefer to cooperate with such organizations. This reduces the risks and allows them to share the burned of the care of choosing the object of financing. The article "Investments in ICO" will help to get acquainted with investing in cryptocurrency projects.The mentioned option does not require much funds for investments, as you may start investing in tokens with very small amounts.