INVESTING TODAY FOR A BETTER TOMORROW
partners' expectations but the venture capitalists wish to make the investment regardless, they will often try to lower the valuation in order to compensate for the potential lack of returns.
Even with such compensation, every deal remains risky. The virtue of investing in illiquid securities is making venture capital the nskiest asset class other than outright gambling. However, it is also the best-performing assets class in the United States and historically has been. Venture capitalists have learned how to use significant risk to their advantage, calculating variables and deciding which risks are worth taking.
An infinite number of risks, and an infinite number of vanables, exist in venture capitalism. Venture capitalists must decide how many exceptions they're willing to make for a given opportunity and whether they can justify the risks to the limited partners, but a few exceptions are often made. I won't refuse a deal because the entrepreneur failed to obtain a patent; Til make sure it's filed instantly and secure the transaction by tranchmg out the investment so I can withhold further capital if the patent is not approved. If the management team isn't filled out, I can provide executives for the remaining positions if the existing team is what Im looking for. Even previous lawsuits aren't automatic grounds for refusal, provided that they don't stem from repeated reckless management.
Evaluating Opportunities
Opportunities can come to a venture capitalist in many ways. The most common is through one of the general partners' close circle of referrals, which can consist of friends, executives, attorneys, and most people they have done business with before. I assume this is different for every venture capitalist. Some may have really strong ties to the legal community, while others may be well known in the medical device space and therefore have many opportunities come their way from doctors. It definitely vanes greatly. These
In addition, entrepreneurs or investment bankers may solicit venture capitalists personally. The task of a venture capitalist is to find, in these opportunities, those that will be sound investments. Executive summaries provide the venture capitalist with an idea of the company's situation