What is Venture Capital?

Starting a new company or taking the first steps of a startup is a challenging and costly process. Many young entrepreneurs are unable to realize their innovative ideas that will contribute to the country’s startup ecosystem or hesitate to step into the world of entrepreneurship due to reasons such as startup costs and lack of capital.

Venture Capital in English and Venture Capital in Turkish aims to find a solution to these problems by making it easier for entrepreneurs of all ages to step into the world of entrepreneurship.

Thanks to venture capital, which is also of great importance in promoting corporate entrepreneurship and intrapreneurship, entrepreneurs who are short of capital can easily access the capital they are looking for and thus easily realize their innovative ideas.

In this article, with the experience and knowledge we have gained from managing venture capital funds for many years, we will try to answer your questions such as What is Venture Capital and What does Venture Capitalist Mean, and we will clarify the subject of venture capital in all its details.

As INVEXEN, you can encourage your employees on the journey of corporate entrepreneurship by learning different types of venture capital through the in-house training applications we offer!

What is Venture Capital? What Does VC Mean?

Venture Capital (VC) is a specialized investment model in which funds or private institutions provide financial support to newly established or early-stage small companies and startups that demonstrate strong growth potential.

However, VC is not limited to financial support alone. It also includes technological infrastructure development and management consultancy for entrepreneurs and early-stage companies.

The concept of venture capital originated with Georges Doriot, widely recognized as the first venture capitalist. A professor at Harvard Business School, Doriot established the American Research and Development Corporation in 1946, where he played a major role in commercializing wartime technologies for the civilian market.

By 2023, VC Fundraising had reached $285 billion globally.

What is a Venture Capitalist?

A Venture Capitalist (VC) is a private equity investor. However, unlike traditional private equity investors, venture capitalists specifically target small companies or startups that are newly established or in the early stages of growth and demonstrate high growth potential.

Venture capitalists expect to acquire equity in the companies they invest in, making their investments not entirely unconditional like government grants or entrepreneurship incentives such as Young Entrepreneur Support Programs. Instead, venture capital funding is structured in a way where both parties benefit—investors gain ownership stakes, and startups receive the capital they need to grow.

Investing in early-stage small businesses and startups carries significant risks. According to The Venture Capital Association, 30% of startups that receive VC funding fail. From an investor’s perspective, this failure rate makes VC investments akin to rolling the dice. Hence, it should not be seen as excessive when venture capitalists seek equity ownership in exchange for their investments.

Some of the most well-known and wealthiest venture capitalists include:

• Peter Thiel
• Yuri Milner
• Joseph S. Lacob
• Douglas Leone
• Michael Moritz
• Marc Andreessen

In Turkey, independent venture capitalists operating individually are relatively rare. Instead, they typically invest through venture capital firms or venture capital funds. Some of the notable venture capital funds in Turkey include:

• Vanora Ventures
• AFM Ventures
• Aegean Ventures
• Arcven Capital
• WePlay Ventures
• DOMiNO Ventures

Advantages and Disadvantages of Venture Capital

The process of securing venture capital is not as easy or idealistic as it may seem. Since both investors and entrepreneurs seek profits, it often requires mutual compromises from both parties.In this section, we will discuss the advantages and disadvantages of securing venture capital funding, providing an in-depth analysis of both aspects.

Advantages of Venture Capital

Venture capital investments offer several key advantages, including:

⦁ Solution to Capital Shortage

⦁ Non-Refundable Investment

⦁ Technology and Management Support

⦁ Network Deals

⦁ Attracting Different Investors

Solution to Capital Shortages

Traditional investors may avoid investing in startups or early-stage growth companies because they see it as a big risk. Venture capital investors, on the other hand, will see opportunity where traditional investors see risk and will invest in your startups in search of that low success rate.

Venture capital investment will play a very important role for you and your company in realizing your innovative ideas. This capital, whether from funds, companies or individual investors, will provide you with the financial resources you need to take your company to the next step and scale.

Non-Repayable Investment

Unlike corporate loans from banks, venture capital investment is not a repayable type of investment. Venture capitalists make their investment in exchange for a stake in the company. Therefore, startup founders or company owners do not need to repay their investment on a month-to-month basis.

Technology and Management Support

The support of venture capitalists is not limited to financial support. These investors also provide startups and small companies with technology support and managerial planning. This support can be of great importance in stages such as hiring new teams and making decisions for growth.

Networking Opportunities

The benefits of venture capital investment include technology and management support as well as networking opportunities. Investors can put you in touch with other startups and company owners in the same sector and help you support each other in terms of information exchange, marketing or business development.

Attracting Different Investors

The networking opportunities offered by Venture Capital also allow you to attract different investors. Venture capitalists who invest in your small company or startup can introduce you to investors they know and help them see the potential of your company. This allows you to access more capital to realize the innovations you want.

Disadvantages of Venture Capital

While venture capital has several advantages, it also comes with some notable challenges, including:

• Reduces the Entrepreneur’s Share
• Difficult to Obtain
• Creates Growth Expectations
• Time-Consuming Process
• Requires Establishing a Board of Directors

Reduces the Entrepreneur’s Share

Getting venture capital for your growing company will reduce your stake in the company. This will harm your say in the decisions you make on your company and prevent you from acting entirely according to your own plans.

Difficult to Obtain

Raising venture capital is not an easy process. Statistics show that only 5 out of 10,000 startups successfully secure venture capital funding. Therefore, launching a startup with the sole expectation of receiving venture capital is not a viable strategy. Entrepreneurs should always have backup plans (Plan B and C) when entering the business world.

Creates Growth Expectations

Securing venture capital funding adds pressure on the startup to meet the expectations of new shareholders. Investors expect rapid growth and high returns, which may force entrepreneurs to adopt a more aggressive and fast-paced business strategy.

Time-Consuming Process

Starting and running a new business requires managing multiple tasks simultaneously, making time one of the most valuable resources for entrepreneurs. Raising venture capital requires extensive research, finding suitable investors, and navigating the due diligence process, which can divert time and energy from core business operations—especially during the critical early stages.

Requires Establishing a Board of Directors

With the inclusion of a partner in your company, it becomes imperative to establish a solid company structure. The responsibilities, expectations and obligations of each person must be clearly defined. This is very important for you to move forward smoothly with your company. At the heart of a solid company structure is a board of directors. Getting venture capital will require you to establish a board of directors, and your venture will change from a personal innovation where only you have a say, to a structure independent of you that moves forward with democratic decisions in line with the interests of the company.

How to Obtain Venture Capital?

There are several ways and methods to secure venture capital. Below, we will outline the most effective steps for obtaining venture capital funding.

Identify the Right Investment Type

Venture capital is just one of the many investment types that can help you grow your business. Before embarking on the journey of securing venture capital, you must first determine whether it is the most suitable funding option for your company.

If you do not want to commit to the complexities of venture capital or prefer to avoid structuring your company too rigidly at an early stage with boards and governance layers, you might consider raising capital from family and friends, crowdfunding, or angel investors instead.

Know Yourself and Your Competitors

Once you have confirmed that venture capital is the right choice, the next step is to define your company clearly. Are you a technology company? What technology or innovation are you trying to achieve? What strategy will you use to get there?

Before applying for venture capital, you must be able to answer these questions clearly and concisely.

Understanding your business alone is not enough. You also need to analyze your competitors. What differentiates you from them? How will you rise to the top of your industry? What is the unique factor that sets you apart?

By examining your competitors, you can better position your business and refine your strategy.

Create a List of Potential Investors

Venture capital funding can be obtained from venture capital funds, venture capitalists, and venture capital firms. Before applying, it is helpful to compile a list of all potential investors you could approach. Having a clear and structured list will make your planning more visible and organized.

Keep Your Message Short and Concise

When sending emails to venture capital firms and funds, it is useful to keep your message as short and concise as possible. No one wants to read your startup story in 25 pages of A4. What you need to do when sending an email to these firms and funds is to explain exactly what role your company plays in which sector, talk about your future prospects, emphasize what differentiates you from your competitors, reveal your growth plans, show your current data and explain in detail how venture capital investment will be beneficial for both parties.

It is also useful to include a short section about your team in your message to strengthen your corporate image in the eyes of venture capital investors.

Set the Rules in Advance

You have introduced yourself to venture capital investors and you have a deal. What you need to do now is to set the rules up front so that neither side regrets it. Who will have a say in the company? Will it be the VCs, you or the board of directors who will decide what steps to take? If your startup or company disintegrates, how will the partnership between you be dissolved?

It is very important that all of this is determined and clearly spelled out in the contract so that you do not regret it later.

Comprehensive Venture Capital Fund Management and Entrepreneurship Programs with INVEXEN

Bringing entrepreneurs together with investors, Invexen offers comprehensive entrepreneurship support to companies from A to Z with services such as venture capital fund management, venture capital training, in-house entrepreneurship program consultancy, investment round consultancy and accelerator program consultancy.

Now, redefine the corporate world of the future and break new ground in innovation by successfully integrating venture programs into your companies!

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