Invest Like a Venture Capitalist
07/13/07 - 04:51 PM EDT
Jonas Elmerraji
Many consider venture capitalists to be the rock stars of the investing world. The perks of success in this field can be impressive to say the least -- a jet-set lifestyle, money to burn and entrepreneurs clamoring to have their ideas heard by you; that's the allure of venture capital (VC 
).
From VC to IPO and Beyond
About a decade ago, a couple of students living in California decided to create a business based on a new search engine they developed called BackRub. Just one problem: Neither student had the money or experience to develop their technology into a profitable company. These days, that company -- now known as Google (GOOG Quote - Cramer on GOOG - Stock Picks) -- is a Wall Street darling, due in no small part to venture capital. And Google is no exception; it's hard to name a technology or life-sciences company that VC hasn't affected. Venture capital firms (whose partners are known as venture capitalists) invest in high-risk, high-potential companies including start-ups , such as Google. Venture capital falls under the umbrella of private equity , because the investment opportunities aren't publicly available and can't be made as easily as buying shares of a stock .
Capital- hungry entrepreneurs turn to VC firms for a couple of reasons: funding and professional guidance. VC firms are willing to provide funding to companies that don't have the history to get funding elsewhere (quite a bit of funding too; according to the National Venture Capital Association, VC firms provided $26.4 billion in 2006).
And to help ensure that a company succeeds, venture capitalists also provide guidance to those companies whose management doesn't have the know-how to run a profitable business on its own. (To learn more about entrepreneurs and small business, check out TheStreet.com's Small Business Management Series.)
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