Classification Of Types Of Venture Capital Firms

Inventions and innovations need backing up of funds to keep going ahead. In the modern times, this backing comes from investment firms, the major chunk of which comes from Venture Capital firms. But there are many types of VC firms and it is important to know the distinctions.

The word venture capital is self-explanatory. It means the firm which invests in a startup in return of its ventures. These institutions play a major role in evolution technology and its application in day-to-day life. A well-known investment honcho, Achal Ghai explained us the different types of VC firms that exist (know more about Achal Ghai here: www.achalghai.com).

Classification Of Types Of Venture Capital Firms

Like any other firm, the success of any VC firm depends upon the amount of hard-work it does on its startups. Following are the common categories of VC firms depending on its approach towards a startup:

  1. Financier:These are the most traditional type of VC investors who sees Venture capitalists as some kind of revered bankers. They think that their main focus is to choose a startup very carefully after analyzing its founders and the potential market of the product of the company. Monitoring of proper usage of the capital becomes one of their major concern after investing in a firm.
    • It doesn’t mean that the financier gets completely detached from the startup after investment, they keep a check on the profits and the valuation of the startup. The interaction between the financier and the startup is very formal and only result-oriented.
  1. Mentor:Many newer VCs fall in this category. They believe that their role is more of a mentor and hence should help the startup with the skills that they have. They help startups with their professional network and experience. There is no hassle in initiating this support and no such thing as ‘procedure’ that the entrepreneur needs to abide by.
    • Sometimes the mentor understands the needs of the startup and tries to help them without them asking for it, but it does not happen always. They look one thing in the founder of the company and that is – is the founder coachable.
  1. Portfolio Operator:They are like mentors in their approach towards a startup, however, the major difference is, the portfolio operators does their mentoring work in very institutionalized and structured way. A portfolio operator proactively looks for ways in which the performance of the startup can be enhanced.
    • One of the most important service portfolio investors provide is the assistance with the recruitment services. They have a network through which they can fetch the right candidate who they think is the best for the position. These VC firms have a large number of employees. They are larger than other types of VC firms.
    • Although the Financier type of VC looks to be more result-oriented and on the other hand, the mentor and the portfolio operator types might look interfering with the functioning of the startup, on a longer run, they prove to be a better VC firm.
    • It is important for a startup to decide very carefully which VC firm it is going to work with. A founder must know that the deal is between two entities. If the VC firm is investing in your startup, it is getting the stakes too. Founders must wait until they find the right VC firm to get their investment from.

Planning to build your own startup is a great idea, but if you choose a wrong VC firm for your the investment, you might end up wasting not only your startup idea but also your potential in the running a startup. Good Luck!

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