Venture capital 101: Everything you need to know - Kounselly
Venture Capital 101

Venture capital 101: Everything you need to know

What is venture capital? That is a question that many startups are often interested in. Venture capital is a form of venture capital investment in which investors provide capital to companies that are newly established or have the potential for rapid growth. To better understand Venture capital, read the information shared in the article below.

What is a venture capital fund?

Venture capital is a type of financial investment in which investors provide capital to startups or companies with high growth potential, but also high risk. Venture capital funds often target new, innovative, high-tech fields, such as information technology, biology, healthcare, clean energy, etc.

Venture capital not only brings financial benefits to businesses, but also helps them gain support in terms of experience, knowledge and network of relationships from investors. Venture capital funds play an important role in promoting the development of new businesses, creating new products and services, contributing to the improvement of the economy and society.

Key elements of a venture capital fund

Venture capital funds are different from conventional forms of investment, focusing mainly on investing in high technology and advanced fields, where there are many potential risks. Therefore, this fund usually has the following characteristics:

  • Participate in investing without requiring a deposit or margin.
  • Investors participate in the fund based on expectations about the future development of the business, not on traditional security factors.
  • Investors share risks when participating in business management, potentially losing invested capital if the business faces risks. On the contrary, the success of the business also brings great profits to investors.

In addition to contributing capital, investors also act as facilitators, providing guidance, suggesting strategies and providing support to help businesses grow stronger.

Process of a venture capital fund

The process of a venture capital fund includes the following steps:

Search and select potential startups

Venture capital funds can approach these businesses through channels such as competitions, events, seminars, introductions from relevant parties, or through self-exploitation of information on the internet, newspapers and specialized databases.

Evaluate and analyze startup businesses

The venture capital fund will conduct meetings, exchanges and presentations with businesses to better understand business ideas, products, services, markets, competitors, and development strategies, operating results, financial planning, human resources and company culture. This fund will also take steps to check and verify information related to legal, accounting, tax, copyright, and intellectual property of the business.

Negotiate and sign investment contracts

If a venture capital fund decides to invest in a startup, the two parties will begin the process of negotiating the terms and conditions of the transaction. These terms may include the valuation value of the business, the fund’s ownership ratio after investment, the fund’s right to influence and control in the business’s operations, and conditions to protect the rights of the funds such as the priority right to divest capital, the priority right to buy additional shares, the right to veto on important decisions of the business, etc. After the two parties agree on these terms, they will sign an investment contract and refund the investment with all necessary legal procedures.

Monitor and support start-up businesses

After investing, the venture capital fund will continue to monitor and evaluate the performance of the business, as well as provide support in finance, business, administration, human resources, and market expansion, connect with partners, customers, suppliers, and other investors. The venture capital fund will also participate in the board of directors of the enterprise, or have the right to appoint some members of the board of directors.

Divestment and profit sharing

When a startup business achieves a higher value, or has the opportunity to list shares on the stock market, venture capital funds will look for opportunities to divest capital and recover profits from their private investments. The fund will sell its shares to other investors, or to the enterprise itself, or through listing shares on the stock market. After divestment, the fund will share profits with its investors, and retain a portion of profits as management fees and rewards for the fund management team.

See more: Prepare an Exit Strategy for Business

Business models are often targeted by venture capital funds

Venture capital funds often target businesses with high growth potential and the ability to bring large profits in the future. Therefore, the business models often targeted by the fund are those that can meet the following criteria:

  • Model with high growth potential: Venture capital wants to invest in businesses with high growth potential that can bring large profits in the future. Models with high growth potential are often those that operate in new areas, have rapid growth, or have the ability to change the way an industry operates.
  • Model capable of bringing large profits: Venture capital wants to invest in businesses that have the ability to bring large profits in the future. Models capable of bringing in large profits are often those with large potential markets, high competitive advantages, or the ability to scale quickly.
  • Model with a talented founding team: Venture capital highly values the founding team of the business. A talented founding team is an important factor determining the success of a business. Talented founding teams often have experience, knowledge, skills and enthusiasm in their business field.

See more: What is business incubator

Top 5 Venture capitals in Vietnam

Below are 5 venture capital funds in Vietnam that are highly rated based on capital size, number of investment deals, and achievements of invested companies:

Mekong Capital

Mekong Capital is one of the leading venture capital funds in Vietnam, established in 1998. The fund has invested in more than 100 companies, including many successful companies such as Vinamilk, Masan Group, The Gioi Di Dong,…

CyberAgent Ventures

CyberAgent Ventures is a Japanese venture capital fund, established in 2005. The fund has invested in more than 100 companies, including many successful companies such as Tiki, VNG, Golden Gate, etc.

Insignia Ventures Partners

Insignia Ventures Partners is a Singaporean venture capital fund, established in 2014. The fund has invested in more than 50 companies, including many successful companies such as Baemin, Loship, Foody, etc.

IDG Ventures Vietnam

IDG Ventures Vietnam is a US venture capital fund, established in 2008. The fund has invested in more than 50 companies, including many successful companies such as VNG, The Gioi Di Dong, The Gioi Nem, etc.

East Ventures

East Ventures is an Indonesian venture capital fund, established in 2009. The fund has invested in more than 100 companies, including many successful companies such as Traveloka, Tokopedia, Gojek, etc.

Venture capital is not only an important source of capital but also a force promoting the development of startup businesses. However, this also means that careful consideration is needed to ensure that the relationship with venture Capital investors is harmonious and beneficial to both parties. For those who want to enter the startup industry, understanding how venture capital works is the key to taking advantage of these promising opportunities.

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