Why are investors looking to invest anyway?
Bottom line . . . To make money.
Investors give money to make money, not to accumulate ownership in companies.
Let's look at a portfolio of 10 companies. For simplicity sake, we'll put $10 in each company. Also, we're going to look for a return of 30% per annum, and we'll say these investments will be in for 1 year only. Generally speaking 1 company will be a home run, 2 companies will be successful (30% return), 4 will be worth only the money invested in them, but will not go public or be sold, so they are as good as failed, and 3 will fail outright.
Thus, 1 company will be responsible for its own return, and the investment and return of 7 other companies. This is why investors focus on the home run. For an investment of $10, we're looking to get $104 from that company. In the beginning, every investment looks like a return of $104 or it wouldn't be made - however, as in this example, often only 1 in 10 makes it.
This is why the market potential and opportunity must be attractive for the investor. A safe investment at a low payoff is generally not worth our time, money or effort.
« What are the stages of Venture Capital? | Main | Where do I start? »
