What You Need to Know About Venture Capitalists

A venture capitalist is a professional investor who provides capital, usually through a venture capital firm, to start-ups and small businesses that show high growth potential, in exchange for an equity stake. Venture capitalists and venture capital firms are one of the best ways for a start-up company to experience exponential growth. The capital from venture capitalists is typically enough for small companies to expand into new markets, hire more staff, and develop new products. However, connecting with venture capitalists and getting funding is not always easy.

To make the process simple, it's always best to know what or who you're dealing with. We're going to take you through everything you need to know about venture capitalists to help you understand venture capital and its purposes. Read on to learn more below.

What is Venture Capital (VC)?

Venture capital is a type of private equity. Firms that offer venture capital are venture capitalist firms and they commonly invest in start-ups and small businesses. Venture capital is invested into these business ventures because they're believed to have a high rate of long-term growth.

Venture capital often comes from large firms and big investors; people who are well-off enough to invest in risky ventures like small businesses and start-up companies. Some common sources of venture capital include banks, individual investors who pool their money, investment firms, and other types of financial institutions.

What is the History of Venture Capital?

Venture capital has been around for longer than many people think. The idea of venture capital has been floated around since the 1800s because it's a type of private equity.

Still, venture capital never became popular until after World War II. It became popular when Georges Doriot began the American Research and Development Corporation in 1946. The corporation invested in companies that were believed to have long-term growth, which is why Doriot is referred to as the first venture capitalist.

What is the Purpose of Venture Capital?

While the purpose of venture capital is to make more money, it's not as simple as that. Instead of earning money back, many venture capital firms invest in companies for a percentage of ownership. Typically, venture capital firms negotiate for roughly 15% to 25% of ownership in a start-up per funding round, though the exact stake depends heavily on the round size, the sector, and the company's valuation.

Venture capital firms take this route because they gain more control in the decisions of a company, which makes it more profitable.

What is a Venture Capitalist?

A venture capitalist is a private equity investor who invests on behalf of banks and other financial institutions.

Venture capitalists provide capital for start-up companies and support small businesses that have a high potential for long-term growth. In most cases, venture capitalists invest for an equity stake in the company.

When do Venture Capitalists Invest in Startups?

Venture capitalists don't invest in start-ups until the risk is worth the reward. Therefore, most venture capitalists wait until the Series A round of funding or the Series B round of funding to invest. Some venture capitalists will invest during the seed round but only if the idea is strong enough.

How Much Do Venture Capitalists Invest in Startups?

Venture capitalists invest a lot of money into start-up companies. This is because venture capital firms invest during the later rounds of funding, and check sizes tend to scale up with each round, from a few million dollars in early rounds to tens of millions or more at growth stage.

What's the Difference Between Venture Capitalists and Angel Investors?

Angel investors and venture capitalists are similar but there are a few key differences. First and foremost, venture capitalists typically invest in start-ups that have a concrete business plan and need help with growth. Another difference is that venture capitalists typically invest more money and the money is invested through a firm.

That said, the main difference between venture capitalists and angel investors boils down to venture capitalists being firms, whereas angel investors are independent.

What are Some of the Best Venture Capital Firms?

Several Venture capital firms exist but they're not all equal. Because some venture capital firms are better than others, it's important to learn which firms are the best. We'll take you through the top five best venture capital firms below.

• Sequoia Capital

• Accel

• Andreessen Horowitz

• Insight Partners

• Index Ventures

Sequoia Capital

Sequoia Capital is a well-rounded firm. It's been around since 1972 and is one of the most active, longest-running venture firms in Silicon Valley, having backed hundreds of companies across its history.

Sequoia Capital frequently invests in technology companies. In fact, it's one of the largest venture capital firms today because of its investments in start-ups like YouTube, Google and PayPal. Today, the firm also invests in fintech companies like crypto exchanges.

Accel

Accel was founded as Accel Partners in 1983 by Arthur Patterson and Jim Swartz. It's an American venture capital firm that focuses on early-stage and late-stage start-ups, with offices in Palo Alto, San Francisco, London, and Bangalore.

Accel has experience taking companies all the way to an exit. The firm was an early investor in Braintree, later acquired by PayPal, and in Krux Digital, later acquired by Salesforce.

Andreessen Horowitz (AH)

Marc Andreessen and Ben Horowitz are the founders of Andreessen Horowitz. The firm began in 2009 and continues to invest in start-ups across the country. The firm prefers to invest in start-ups within the e-commerce and gaming industries but there's also a focus on social media and cloud computing.

Some notable companies that AH invests in include Twitter ($80 million), Facebook, and Stripe. AH also takes risks and invests in early-stage start-ups. Its early investment in Skype, made shortly after the firm launched in 2009, is one of its best known bets; Skype sold to Microsoft in 2011 for $8.5 billion.

Insight Partners

Insight Partners is a venture capital and private equity firm with locations in New York and across the United States. Jerry Murdock and Jeff Horing are the founders of the company, and it was opened in 1995.

The goal of Insight Partners is to invest in high-growth software and technology companies. Some examples include Shopify, Delivery Hero, and Qualtrics. Today, the firm has invested in more than 875 companies.

Index Ventures

Index Ventures was founded in 1996 and got its start as a European company. While Index Ventures got its start in Europe, the company now has hubs in San Francisco and London. Index Ventures is known for investing in gaming, e-commerce, security, and fintech.

Some of the most notable start-ups that Index Ventures has a hand in are Facebook, Codecademy, Dropbox, and more. Index Ventures is also known for a strong track record of exits through IPO and acquisition, including Etsy, Dropbox, and Just Eat.

How Do You Connect with Venture Capitalists?

It's never easy to connect with investors. Fortunately, AngelMatch makes connecting with investors straightforward. You don't need a network and you don't have to build one because platforms like AngelMatch create the network for you.

AngelMatch is the best place to connect with investors because it's a database that's full of venture capitalists, angel investors, and other types of investment options. Plus, it's completely free to start. If you want to narrow the list down further, AngelMatch's VC Search Tool lets you filter firms by stage, market, and location.

Still, there are several other options that will help you connect with investors. Feel free to try social media, in-person meetings, and more. Some start-ups even have luck when they send proposals directly.

Connect with Venture Capitalists Today

When you have access to a database that contains thousands of venture capitalists, it's easy to make connections. AngelMatch focuses on connecting investors with start-ups and without the hassle of navigating social networks. Furthermore, you don't need a network and there's no need to attend networking events.

With AngelMatch, all you need is an idea. Let us take that idea and help you turn it into a reality today. Give our database a try and start connecting with investors today.

Venture Capitalist FAQ

How much equity does a venture capitalist typically take?

Ownership varies by round and sector, but venture capital firms generally negotiate for around 15% to 25% of a start-up per funding round. Firms may take less in competitive rounds and more in capital-intensive deals, and later rounds usually mean smaller stakes as the company grows in value.

Who is considered the first venture capitalist?

Georges Doriot, a Harvard Business School professor, is widely credited as the father of venture capital. In 1946, he founded the American Research and Development Corporation, generally regarded as the first modern venture capital firm in the United States.

What's the difference between a venture capitalist and an angel investor?

Venture capitalists invest institutional funds through a firm and typically join later, from Series A onward. Angel investors invest their own money individually, often earlier, at the pre-seed or seed stage. See our full comparison of venture capitalists and angel investors for more detail.

How do I find venture capitalists to pitch?

Instead of relying on personal networks, founders can search a database like AngelMatch's investor directory to filter venture capital firms by stage, market, and location, then reach out directly with a pitch deck or warm introduction.