Venture Capital: Funding a journey

The concept of venture capital is rooted in maritime exploration, as brave pioneers were provided with boats and funding to head off in search of treasure. It sounds like a pirate movie and unfortunately the startup world holds just as much risk and danger as the story on the big screen!

Or small screen, these days, as Netflix has replaced going to the movies.

Netflix is a wonderful example of why the venture capital space is so exciting. After all, what could be better than building a platform or a product which becomes a household name?

Venture capital funding is a fascinating space. These funds cast many lines into the water, hoping to catch just one big fish per fund. That fish might have a name like “Facebook” or “Snowflake” and makes up for all the other lines that either don’t work out or catch very small fish.

This is known as Power Law – the returns on a few outliers (extreme performers) will more than outweigh the other investments going to zero.

The appeal of startups to venture capitalists is thus clear, but what is the appeal of venture capitalists to founders of startups?

A business is like a raging fire. It needs oxygen to keep burning. Funding is the oxygen – without it, the fire goes out, no matter how hard anyone tries to keep it alive.

Many founders manage to self-fund the initial part of the journey. Very few (if any) can scale a startup successfully without outside investors. The trick is that investors shouldn’t just bring money to the table. Ideally, they need to bring ideas and networks as well.

Read more about venture capital on thefinanceghost.com and sign up for free to the weekly mailer, Ghost Mail.