hr: Money

Stories abound about the quick successes that Venture Capitalists (VC’s) have had in the past. Chances of starting the next Google, are every VC’s dream come true.

Photo Credit: HowdeeDoodat

However, it’s probably true that most venture capitalists lose their money altogether. Most VCs gain their returns through an IPO, or some other form of liquidation. The chances however, of a successful venture is very low, according to Philip Bronner, a general partner at Novak Biddle Venture Partners.

Most venture capitalists lose their money in the entreprise, and hope to gain it all back by the one or two that do manage to work out. The lesson is, that you musn’t put more money into a venture than you can afford to lose.

This restricts the range of venture capitalists to those who have a very high net worth, since only such individuals or firms can afford the cost. Most venture capitalists of course, vet their applications, and demand thorough business plans. The problem is, that even with all this, it is impossible to determine which businesses are going to succeed, and which ones are going to fail.

Even for business that do succeed, it may be several years before the investment can be recouped. Typically, if you wait for an IPO, then that will take time. The chances of the business becoming profitable enough to buy out it’s investors is very slim indeed.

So the rule is, you can afford to be a VC only if you have dozens of projects, and can bear the loss of several failed ventures.