What is Venture Capital?

Dear delegates,

This week I am going to be explaining what exactly venture capital is, which is especially important considering our committee name is Berkeley Venture Capital. Seeing that this committee is about the formation of products, it is safe to assume that venture capital pertains to outside investment in companies that are in their earliest stages. In actuality, the investment known as venture capital can be structured in two ways: equity or convertible debt. The concept of equity is when the investor gets a stake in your company in exchange for giving you money. For example, if an investor were to give you $100,000 in exchange for 10% equity, then they would be valuing your company at a million dollars at the time of the investment. It is important to note that an investor’s equity in your company is calculated with its value at the moment that this exchange is taking place; it is not based on the future potential of your company. The second kind of venture capital, known as convertible debt, is money that needs to be repaid to the investor at a certain point in the future. However, more often than not, an investor will turn the money they are owed into equity in the company rather than asking for it back. 

It is important to note that venture capitals are extremely risky. Considering that your companies are at their earliest stages, there is no solid indicator that there is a bright future ahead. To explain this numerically, the odds of a company becoming successful is one in ten, tipping the odds away from the investor. While there are many other aspects and factors that play a role in venture capital, this is a basic explanation of what venture capital is, and how it plays a role in the growth of your company. Good luck preparing!

-Melika

(Source:https://www.forbes.com/sites/georgedeeb/2016/07/18/what-exactly-is-venture-capital/#4a592ddd2501)