Pioneer Investing with Venture Capital Funds

Venture capital funds are unique because they invest in companies not yet offering stock on the general market. When you are a part of a venture capital fund, you are providing the base funding for a wholly new business that may not even have a single dollar in business loans or funding from other sources. Typically, engaging in the venture capital business requires a very high level of capitalization. Just like mutual funds allow low-cap investors to play like large-cap investors, venture capitals offer the same.

Create a Capital Fund

The biggest advantage offered by a venture capital fund is the ability to pull many investors together into one large group. The belief of this type of group is that one hundred dollars in the hand of one is more powerful than one dollar in the hands of one hundred. The group can have a greater impact than any individual investor. In part, this is because venture capital fund advisers are present at funding presentations and conferences individual investors may not be able to access. They are the first to hear about business opportunities, and this puts them in a key position to capitalize on those opportunities.

Invest in Specific Industries

In recent years, venture capital funds have begun to specialize more and more. In particular, several green technology or environmentally motivated funds have begun investing in alternative energy programs. Technology funds provide the bulk of the financing to new and creative services. In fact, Google, today one of the world's most profitable corporations, was started with a small initial investment from a venture capitalist. If you are passionate about a specific industry, you can begin to concentrate your investments in this industry by locating the appropriate venture capital fund for that industry.

Get in Early

Once a company is already successful, it will likely only see incremental growth in the future. This is the basic economic law of diminishing return. Once a business is productive, it must put in a far higher amount of capital to generate a small increase in productivity. If you get in at the beginning, though, you can locate a company that is operating under its ideal productivity. This is where the chance lies to make large change with a small investment, the opposite of what happens on the back end. Venture capital provides a much larger return if the investment is solid than even an equally solid investment in a mature stock. 

Serve as an Adviser

There is a class of investors generally referred to as mezzanine investors. These individuals are venture capitalists, but they also have specific knowledge in the area they are investing funds toward. This means they can serve as advisers and not just financiers to the companies they select. If you have a wealth of experience in an industry, serving as a mezzanine investor may give you the opportunity to locate profitable endeavors and interact with those companies on a part-time or consultant basis. Many retired professionals like this option so they can stay involved in the business without having a full-time, high-stress job.

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