What Is the Role of a Venture Capitalist?

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A venture capitalist plays a key role in arranging early-stage funding, hiring top managerial talent, offering expert advice and other ancillary services to tech starups and pioneering product companies. Early-stage funding and spotting of high-growth companies by venture capitalists is vital to encourage the entrepreneurial drive and inventive spirit of engineers, inventors, scientists and entrepreneurs. Venture capitalists played key roles in the development and growth of Silicon Valley and later IT/tech clusters in Boston, the Washington D.C. area, Austin, Texas and New York City in the 20th century.

Identifying High-Growth/Potential Firms

  • A venture capitalist possesses sharp business acumen, an eye for industry-shaping or industry-turning trends and the ability to spot the potential of talented inventors and entrepreneurs with innovative ideas. A trained or experienced venture capitalist identifies potentially high-growth computing, mobile, Internet firms or futuristic technology start-ups with long-term growth prospects. Identifying companies helps venture capitalists to parse their role and participation in these entities and gauge the level of funding needed to encourage or propel these companies forward.

Early-Stage Funding

  • Every startup, whether in the IT, Web 2.0 domains and the fast-developing clean tech and bio-sciences fields needs seed capital or early-stage funding to commence operations and tap markets. A venture capitalist with a keen eye for promising startups and entrepreneurial ventures provides the much-needed private equity capital to kick-start operations or fund research and development activities or offer financing for managing key business operations. Early-stage funding is the key to the growth prospects and ultimate market success of a high-potential or young and expanding venture.

Hiring Executives and Managerial Talent

  • A venture capital firm, with its huge pool of internal resources and access to industry experts, is well-placed to guide a startup venture through the early stages of growth. It engages with promoters or founders of startups and new businesses and hires top managerial talent and corporate executives to manage day-to-day operations. Depending on the contracts drawn up, the top executives report to the promoters or the venture capitalist.

Mentoring Entrepreneurs

  • Many venture capitalists and venture capital firm promoters have been successful businessmen, industry executives and/or entrepreneurs. Influential venture capitalists John Doerr and Vinod Khosla have mentored and funded companies such as Amazon, Google, Sun Microsystems, Netscape and Compaq. Most venture capitalists play the role of mentors. They guide entrepreneurs about the pitfalls of the stock market, fine-tuning the revenue model, consumer market expectations about products and services and even key business operations.

Other Roles

  • A venture capitalist helps professionalize startups and especially ventures with young entrepreneurs at the helm. In conjunction with the entrepreneurs, he formulates market entry and penetration strategies for products and services, new levels of funding, marketing communication plans and exit strategy of the venture capital firm. The venture capitalist also provides other ancillary services such as legal advisors, financial strategists and specialized experts in technology, IT or relevant domains.

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