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Venture Capitalist Who Are They and What Do They Do

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Marketopedia / Basics of Stock Market / Venture Capitalist Who Are They and What Do They Do

Part 2- The Venture Capitalist

Here’s what happens after the angel investors’ funding: 

The entrepreneur’s hard work is rewarded, and his business starts to bring in a steady income. After two years of functioning, the company is no longer at a loss. This newfound experience has brought the promoter knowledge and self-assurance. Encouraged by this confidence, they come up with a plan to extend the business – adding an extra manufacturing unit and a few more retail stores in the city. The estimated new investment for this expansion amounts to INR 10 Crs.

The entrepreneur is much better off compared to two years ago, due to their business now producing revenue. This success has enabled the entrepreneur to approach potential investors with confidence, such as Venture Capitalists, who will typically provide Series A funding.

If an entrepreneur is able to get the 10 Crs they need to develop their business, it’s likely that the following will take place –

  1. The promoter is diluting their shares.
  2. The valuation of the business increases.
  3. Previous investors, such as the two angles in this case, typically make substantial gains from their initial funds.

Thanks to the VC’s investment, there is a boost in the notional value or the valuation of the enterprise which leads to notional wealth for early investors.

As we progress with our narrative, the promoter has attained the crucial capital needed for the business. As predetermined, they have managed to acquire an extra manufacturing unit and a few more outlets in different towns. Everything is going in the right direction; the heightened popularity of the product has resulted in more income. The operational proficiency has grown with the help of a professional management team, which as a result, produced great earnings.

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