Invest Like a Venture Capitalist

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 ).

But how can that world translate into gains for your own portfolio? It can, if you know where to look.

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 - Cramer's Take - Stockpickr) -- 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.)