Maxfield 1

Jesse Maxfield
Richard Lambert
Business 1010
April 16, 2016
Venture Capitalist
There is a saying, It takes money to make money. This statement couldn't be more true
for a business trying to start up. Businesses of all size need different amounts of money to begin.
Starting a company that provides a service, such as lawn care, is a little bit simpler because you
ultimately just need a few tools to get the job done. A business that provides certain goods can be
more complicated because there are so many variables that play into your ability to make money.
For example, it is a fine balance of having enough goods and the right balance of goods, that you
will be able to sell enough, but also not have so much that you get stuck with a surplus. It can be
very expensive to build up an inventory of products. Business is incredibly complex, and there
are risks on many levels. Certain risks can affect you personally, but it can also affect your
family and business partners. These risks come when you are obtaining funding to start or are
trying to keep your business alive. Funding comes in many ways, some use bootstrap financing,
where they use little capital and are often borrowing money from family and friends. Some seek
money from loans and grants. Many companies seek funding today through venture capital.
Venture capital has its inherent risk and benefits, just like many other ways of financing
(Solomon, Poatsy, & Martin, 2016).
Venture capital is an investment in the form of money that includes a substantial amount
of risk for investors.Venture capitalists are corporate entities that use funds from other investors
and manage that money by investing it in businesses with prospects for high growth. There are

Maxfield 2
key differences between venture capital and other forms of funding. Venture capitalists are
investing in businesses carefully and are very picky about the projects in which they invest
because they want to minimize the risk of failure. Generally, the financing they offer is available
only to businesses that have been operating for several years and have the potential to become
larger, publicly owned, regional or national companies. In return for the investments, venture
capitalists get some form of equity, which is a piece of ownership in the businesses. To protect
their investments, venture capitalists sometimes demand to play an active role in the
management of the company. Venture capitalist ask for more in return, and want to be actively
involved in the company. This can be an advantage or disadvantage for business owners. Venture
capitalists will be owners in the business, and the business is going to give venture capitalists
more money, but the venture capitalists know that the more money the business is going to make
is going to give them a higher return, so they will be working in the businesses favor and
ultimately trying to make them more money. Business owners must be open to the idea of
relinquishing control when they seek venture capital funding. Venture capitalists are often willing
to wait longer then other investors, lenders, or shareholders for returns on their investments, but
they expect higher-than-normal returns. If youre a business owner and are seeking venture
capital you need to have some potential in your business and be willing to be flexible, but if the
situation is right the potential return can be incredible (Solomon, Poatsy, & Martin, 2016).
We have discussed the role of venture capitalist in assisting younger or smaller businesses
with potential for growth, by funding them, but also taking a active role in company itself. Let us
not forget that venture capital in and of itself is a business that has to make money, requiring a
large amount of resources and employees of different backgrounds. One might think that venture
capital firms are only composed of a variety of current or previous business owners, but this isn't

Maxfield 3
the case. Venture capitalists come from all types of backgrounds. One of the key roles that
venture capitalists have to do day-to-day is to evaluate companies to determining whether to
invest in them. Different backgrounds provide different areas of expertise which can assist in
being able make correct investment choices. There are four major areas that venture capitalists
evaluate when determining whether to invest in companies:
1. Products and the technologies on which they are based
2. The market and marketing
3. The management team
4. Financial considerations
You can see how each one of these areas is different, but each one plays a significant role in
determining the worth of an investment. For example, technical training and work experience in
an operating company in engineering, science, or clinical affairs would enable one to evaluate
products and technologies of a potential investment. In addition, when assessing the management
team of the potential investment company, any experience one has of hiring and managing
people will be beneficial in being a venture capitalist. A broad range of skills is required to
perform the many tasks of a venture capitalist. It is unlikely that any one person is knowledgable
in all the categories, which is why it is so important for venture capital firms to have a wide
range of employees and resources (Dotzler, 2001).
The five major activities of a venture capitalist are as follows: Solicit or create investment
opportunities, evaluate companies, negotiate the terms of investments, help build successful
companies, and liquidate investments. Venture capitalist should be able to provide deal flow,
which is a stream of business opportunities in which to invest, often from past relationships.
Evaluating companies as previously discussed is a key aspect of a venture capitalist. Negotiating

Maxfield 4
terms is extremely important because it is essentially proof and the legal agreement that you
will receive your fair share of profits and other promises. When you are helping to build
successful companies you are at the core of your job, because if the company you are investing
in succeeds, you succeed. Finally, even though the investment process is often long, there comes
a time when you liquidate or essentially give up your responsibility in the company. Although
investors are committed to a company for the long haul, that does not mean indefinitely. The
objective of equity investors is to achieve a high rate of return through the eventual and timely
disposal of investments. In any investing, you don't want to get stuck in a bad investment. It can
quickly become a never ending battle and a deep money pit. A smart investor will be considering
potential exit strategies from the time the investment is first presented (The U.S. Small Business
Administration). These five aspects are the main responsibilities that a venture capitalist should
accomplish (Dotzler, 2001).
It has become clear that being a venture capitalist is in no way a simple career. The
education and the experience required is elite. According to studies, the profile of the average
venture capitalist in the United States has shown that, the average partners age is 46 years old, 79
percent were men and 87 percent were caucasian, 53 percent had an MBA, and another 15
percent had a PhD, JD or MD (Vidra, 2013). Even though there is no set of requirements
someone must have to become a venture capitalist, the higher the education the better your
opportunities become. Many come from jobs in in consulting or finance, which form a excellent
base for being able to make good investments. Different qualifications will affect your salary as a
venture capitalist. In general, pre-MBA venture capitalists can expect an annual salary of
$80,000-$130,000. With a bonus, which is often a percentage of salary, that can be boosted to
$86,000-$250,000 (Zucchi, 2016). Venture capital has very fierce competition, and there arent

Maxfield 5
many jobs out there to begin with (Vidra, 2013). It takes time to get into venture capital. People
need to start by building those skills early on in those areas and careers involved and expanding
their networks to individuals who can assist you along the way. The career outlook is a slim
outlook because of the aspects I have explained. People can accomplish what they put their mind
and heart into. Becoming a venture capitalist requires determination.
Mark Cuban is a example of hard work and determination in the world today. He was
born on July 31, 1958, in Pittsburgh, Pennsylvania. Cuban grew up in a typical middle-class
childhood. His father, Norton, spent nearly 50 years working at a car upholstery shop. His
grandfather, Morris Chobanisky, showed determination and effort as he did what ever he could to
make his family life better. Chobanisky emigrated from Russia and fed his family by selling
merchandise out of the back of a truck. Cuban took the example of his grandfather from a very
young age. Selling garbage bags, he earned just enough money to buy a pair of shoes he wanted.
This desire to earn money continued through out high school. He also had a strong desire to do
well in the classroom. In his junior year of high school, he enrolled in college classes at the
University of Pittsburgh. He then skipped his senior year and enrolled full-time at the college,
and paid for his full tuition. Graduating in 1981, took a job with Mellon Bank, just as the
company was ready to switch over to computers. Using this as an opportunity to immerse
himself in the study of machines and networking. In 1982, he left Pittsburgh for Dallas, landed a
job selling software, and eventually formed his own consulting business, MicroSolutions. Cuban
sold the firm to CompuServe for $6 million. His fortune making was far from done. With the
skills he had acquired, he knew a new world awaited with the internet. Cuban and a business
partner started AudioNet in 1995, despite early criticism, it became a huge success and soon sold
out to Yahoo for nearly $6 billion (Biography.com Editors, 2016). Cuban is currently a TV star

Maxfield 6
on the show Shark Tank. The reality show, offers a peek into the venture capital arena. It features
high-profit investors like Cuban, who listen to several new business pitches every week.
Although many business ideas are turned down, some end up getting funded (Solomon, Poatsy,
& Martin, 2016). Cuban is a perfect example of the effects that thinking ahead, working hard,
and investing smart, can have on an individuals life.
Just like lots of decisions we make in life, there are pros and cons in each different
situation in business. There are many questions to be asked, that can have high consequences.
Funding a business is perhaps one of the biggest issues that arises. It is difficult because when
starting a business, people dislike going and seeking outside funding because of the implications
that come along with it, but we can see how business growth is often restricted by bootstrap
financing. If the business doesnt have the proper amount of substance, it will not survive.
Funding is often about timing. People never want to give away too much of their company at an
early stage, but their number one job is to ensure theres enough capital in the bank to keep the
doors open and the business running (Frankel, 2015). When it comes to being a venture
capitalist, it can be high risk or high reward. There are many business out there that can use the
money, but may or may not have potential to become a high growth company. A venture
capitalists job is to determine what business to put significant amounts of money into. It require
countless amount of time and research on the company they may or may not invest in. There is
no guarantee of anything when it comes to the market. It involves important decision making and
rational thinking which can be a very stressful process. It is a very logistical process that requires
very detailed plans. This aspect can really make the job a grind. When it comes to the rewards of
your efforts, they have potential to be extraordinary. Its just about figuring out which ideas are
going to develop next. Look at companies like Apple and Google. Who would have ever though

Maxfield 7
that such things would become so dominating in the world today. The same result can happen for
venture capitalist. If they do the research and make good investments.
After looking into venture capital there are many aspects I knew hardly anything about. I
didn't know of the complexity of experience and education that most venture capitalists have. I
also didn't realize that it is a career that come later in life. I realized the incredibly stressful
aspect of having to decide what is a good investment. Once companies are chosen to invest in, it
requires even more work to be involved in the company and do the things that are needed to
make the company grow and develop. When I begin to look at my personality and venture
capitalist, I don't think it is a very compatible match. Even though I would enjoy the hands on
aspects of making companies succeed, I don't think the logistical research and evaluations would
fit.

Sources
Biography.com Editors. (2016). Mark Cuban Biography. Retrieved April 16, 2016, from
http://www.biography.com/people/mark-cuban-562656
Dotzler, F. (2001). What Do Venture Capitalists Really Do, and Where Do They Learn to Do It?
The Journal of Private Equity Private Equity, 5(1), 6-12.

Maxfield 8
Frankel, R. (2015, July 13). The Pros And Cons Of Raising Venture Capital. Retrieved April 16,
2016, from http://www.forbes.com/sites/ryanfrankel/2015/07/13/the-pros-and-cons-ofraising-venture-capital/#2b07b1db5bc8
Solomon, M. R., Poatsy, M. A., & Martin, K. (2016). Better Business (4th ed.). Upper Saddle
River, NJ: Prentice Hall.
The U.S. Small Business Administration. Venture Capital. SBA.gov. (n.d.). Retrieved April 16,
2016, from https://www.sba.gov/content/venture-capital
Vidra, E. (2013, August 13). So you want to be a venture capitalist? Retrieved April 16, 2016,
from http://venturebeat.com/2013/08/13/so-you-want-to-be-a-venture-capitalist/
Zucchi, K. (2016). Become A Venture Capital Associate | Investopedia. Retrieved April 16, 2016,
from http://www.investopedia.com/articles/personal-finance/021115/become-venturecapital-associate.asp