Image: Venture Beat
A venture capitalist is usually an investor who provides capital to start-up ventures or supports early-stage, emerging, small companies that have high growth potential or shown high growth.
Normally, these start-up companies wish to expand but do not have access to capital or equities markets. This is due to the limited operating history that is too small to raise capital in the public markets or it is yet to be strong for them to secure a bank loan. Thus, venture capital is attractive and an essential source of money for start-ups and new companies.
The start-ups that attract investment from venture capitalists are usually in information technology (IT), communication, innovative and high technology industries.
Venture capital can be coming from wealthy investors, investment banks or any other financial institutions that pool similar partnerships or investments. Venture capitalists are willing to invest in these young companies because they can earn a huge return if these companies are a success. A massive return can be generated when the start-up “exit” by selling its shares to the public for the first time in an initial public offering (IPO) or “trade sale” of the company.
On the other hand, venture capitalists can also experience huge losses if their invested start-up failed. However, these investors are usually wealthy enough that they can afford to take the risks in funding new companies that could be having a great idea and a great management team which can be successful in the long term.
The downside for the start-up owners however, is that these venture capitalists usually get a say and control over company decisions, on top to a significant portion of the companies’ ownership, in exchange for the high risk that venture capitalists assume by investing in smaller and early-stage companies. On the bright side, venture capitalists can also provide strategic advice and marketing strategies to the company.
For start-ups to approach venture capitalist, you should have a business plan or proposal ready to present to a venture capital firm.
If the venture capitalist is interested in your proposal, the venture capital investor or firm will perform due diligence which includes a thorough investigation of the company on its business model, products, management and operating history, among other things.
Once due diligence has been completed, the firm or the investor will pledge an investment in exchange for equity in the company.
Malaysia Venture Capital Management Berhad (MAVCAP)
For Malaysian start-ups, one of the venture capital firms to check out is Malaysia Venture Capital Management Bhd (MAVCAP). The country’s largest venture capital firm is always looking into investing potential companies locally and worldwide despite market uncertainties.
In 2001, the Malaysian government formed MAVCAP and since its inception, it has invested more than RM1 billion in more than 160 companies in Malaysia and Asia.
MAVCAP’s focus is to support Malaysian-based information, communications and technology companies followed by the manufacturing and life sciences sectors, which includes biotechnology, among others.
MAVCAP’’s investment period is between five and 10 years, with its main aim to enable the start-ups to be listed on Bursa Malaysia through an initial public offering (IPO), depending on the market and economic conditions.