In recent years, the term “venture capital” has become more common among people who start new businesses and those who invest in them. Essentially, venture capital is a financial institution that provides funding to businesses, particularly startups.
The fund is essential for startup founders to keep the business operating and expanding. Especially during the startup and expansion phases.
If a startup needs venture capital to grow, venture capitalists are responsible for managing the money and giving it to the startup. Commonly, venture capitalists are also known as venture capital officers.
The million-dollar question now is, what does a venture capital officer do? Let’s discover below!
Also read: What is Venture Capital? Definition, Benefits, How It Works
Who is A Venture Capitalist or Venture Capital Officer?
Who is A Venture Capitalist? (source: Freepik)
As previously stated, venture capital is an institution that finances new businesses. The venture capital industry is comprised of private investors, banks, and other financial institutions.
In order to fulfill its purpose, venture capital requires venture capitalists. Venture capital is the institution, whereas venture capitalists are the individuals who manage it. Consequently, venture capitalists are referred to as “venture capital officers.”
Venture capitalists are professional investors who give money to companies and start-ups in exchange for a share of their stock. They seek and target companies with tremendous growth and profit potential. Then, they will invest in these companies with the expectation of a high return on investment (ROI).
Also read: 6 Characteristics of Venture Capital You Need to Know
The source of the funds may include pension funds, insurance companies, financial institutions, and private equity. These funds will be raised and managed by venture capitalists, who will also determine which companies to invest in.
The owner of the fund is referred to as the limited partner (LP), whereas the venture capitalist is referred to as the general partner. A career as a venture capitalist is risky. They run the risk of losing a substantial amount of investors’ funds. Therefore, venture capitalists must invest with extreme care in the right companies.
Also read: How to Get Investment from Venture Capital?
Venture Capital Officer Role
At first glance, the role of a venture capitalist or venture capital officer is limited to locating the most promising startup to invest in. However, that is not even close to the truth.
This enormous task of locating the ideal startup can be divided into several smaller roles:
1. Finding the Right Startups and companies with a potential growth rate
This is the primary responsibility of a venture capitalist. A venture capitalist must be aware of the startups with the most potential because there are so many of them. This is the key to increasing their profits and preventing losses.
When venture capitalists find companies with high growth rates, they must also take the appropriate steps to determine whether the company is worth investing in.
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2. Investment Potential Analysis
Next, the venture capital officer will analyze the investment potential through a process of due diligence and an analysis of market projections. If the analysis reveals favorable growth and potential, they will initiate the negotiation process.
3. Startup Mentoring
Even if the negotiation process was successful and the investment agreement is signed, the job is not yet complete. Investing in venture capital is a long-term commitment that typically lasts between 5 and 8 years.
During this time, venture capitalists will participate in strategic decision-making. In addition, they have the right to veto certain crucial decisions, such as expenditures and sales.
Also read: 5 Main Role of Venture Capital on Startup Business
4. Building Network
Developing a network is crucial for many business sectors, including venture capital. Consequently, venture capitalists have an essential role in expanding their networks. This can be accomplished by following the trend, navigating the new startup, and funding industry players.
5. Reporting to The Limited Partner
A venture capital officer is required to prepare a routine report for the limited partner as a form of accountability to the parties who have entrusted their funds to venture capital. Using this report, the investor can track the company’s progress and future investment potential.
6. Finding A New Investment Partner
In addition to the tasks listed above, a venture capitalist must also do something else very important. They must discover a new investment partner. This position corresponds to the network-building role described previously.
The more people a venture capitalist knows, the easier it will be for them to find new investment partners. The greater the number of partners they have, the more capital they can raise for startups and businesses. Consequently, they will acquire a larger portfolio.
7. Administrative Tasks
Moreover, venture capitalists are burdened with an abundance of administrative duties. This includes accounting, the completion of investor data, journaling, and the writing of internal reports.
Also read: 12 Best Venture Capital in Southeast Asia
How Venture Capitalist Works
How Venture Capitalist Works (source: Freepik)
Now that we understand the function of venture capitalists, we can better comprehend how venture capitalists operate. How do venture capitalists manage a fund of investments and allocate them to startups? Let’s find out!
Limited partners will initially invest their capital with venture capitalists. This is possible once the investor and venture capitalist have reached an agreement.
In addition to investing capital, limited partners will also lend venture capitalists money to cover the management fee. This fee is used for management and oversight of their investment. This position resembles the investment manager in Reksdana at first glance. However, the roles of venture capitalists are more nuanced and complex.
The venture capitalist will then distribute the investment fund to successful companies and startups. The venture capitalist will ensure that these businesses qualify and meet all agreed-upon criteria. such as the growth potential of a startup.
Also read: The Top Venture Capital Firms in the World
Finally, venture capitalists will provide mentoring and evaluate the performance of the startup. Additionally, they may seek out new opportunities to generate profits from the invested funds.
You may now be wondering how venture capitalists generate income. The solution lies in the exit stage.
The exit phase indicates that the startup in which they invested has either gone public via an IPO or been sold to a larger venture capital firm.
Through this process, venture capitalists typically earn a return of approximately 20%. In addition, they will return 80% of the funds plus the management fee to limited partners.
You now understand the function of a venture capitalist. In addition to investing, fund managers must perform a variety of other tasks in support of their primary responsibility. Are you considering a career as a venture capital officer? Prior to interacting with a real investment fund, you must have a thorough understanding of the roles and responsibilities!
