Today, investing has become more accessible than ever before. You can buy stocks of large companies, or you can invest in young projects and startups. A venture capitalist is one of the riskiest and most profitable roles in this field. Kirill Fomichev, an investor and co-founder of the international venture capital club Prosto VC, provided insight into the specific features of this role.

How Is a Venture Capitalist Different from Other Investors?

There are many different roles in the investor market. Most commonly, a venture capitalist can be associated with an angel investor, so it is worth understanding the difference between these two roles, although there is some overlap between them.

1. Source and Direction of Funding

Angel investors usually contribute their personal funds to startups. They may have accumulated their investment capital through their own entrepreneurial projects or other business initiatives. And they tend to seek to invest in projects in a market they are already familiar with.

Venture capitalists, on the other hand, are usually representatives of a larger organization, such as a venture capital fund, which pools money from various limited partners to invest in startups. Although there are exceptions, a venture capitalist may be individually active, while angel investors may be clubbed together. So keep looking for the differences further.

2. Level of Involvement

Angel investors tend to be more hands-on and actively involved in the startups they invest in. They may offer guidance and mentorship and create industry connections in addition to their monetary investment.

Venture capitalists, on the other hand, may be less involved in the inner life of the project and may provide more financial and strategic support without necessarily being as deeply immersed in the day-to-day operations of the company.

3. Investment Stage

Angel investors are often involved in the earliest stages of a startup, providing the initial capital needed to launch the business. They may invest in high-risk ideas or concepts with potential for growth.

Venture capitalists usually come in at later stages of a company’s development, such as the growth or expansion phase, when the startup has already demonstrated market appeal and scalability potential.

4. Investment Criteria

Angel investors often invest in industries or sectors based on personal experience and knowledge. They tend to support startups that match their own interests and connections.

Venture capitalists, being part of larger firms, often have more diverse investment criteria and do not limit themselves to one market or one area. On the contrary, they try to diversify their portfolios as much as possible.

It is important to note that these differences are not absolute and vary depending on individual preferences, investment strategies, and specific circumstances.

Understanding this distinction, in turn, helps answer another important question: “Who can become a venture capitalist?”

What Skills and Experience Does a Venture Capitalist Need?

There are no rigid criteria for entering this market. Some investors have an excellent understanding of technologies and projects, and others are deeply immersed in the processes and have experience in entrepreneurship and running their own projects.

There is also a third group – absolute beginners who have no experience in investing and have only an inner instinct or rely on advice and trends that they read in their environment.

Therefore, soft skills play a fundamental role for a venture capitalist. Among the most essential are three qualities:

Curiosity

Venture capital investment is about new projects, startups that can completely change the existing market picture. It is important for an investor to be able to think outside of the existing realities, to have an interest that overcomes risk, to see the potential of the project in which they are going to invest.

Curiosity is something that is inherent to everyone, and yet, in the field of investment, this quality needs to be developed on a level with skills or physical abilities. 

You can do this in several ways: develop erudition, constantly learn new things, and thus arouse interest in the world around you. Make it a habit to ask questions, even about the simplest things: “how?” and “why?”.

The Ability to Forecast

The importance of this skill is directly related to the nature of the startups being invested in. It is important for an investor to understand how the market will change and how a particular startup can change the direction of that market.

Forecasting is also a skill that requires practice. And it grows out of curiosity. Add abstract thinking to this quality, add critical thinking, and you will get the ability to make strategies with several development scenarios.

Communications

Social capital plays an important role in the life of a venture capital investor, and it is roughly on the same level as personal qualities and directly the financial capital that goes into the investment.

Most of the information in. the environment we get from practical experience – our own and those around us. Therefore, the more extensive the social capital, the more chances the investor will have to make the right decision because someone from the community can provide insider information, share a forecast, and provide the necessary analytics at the necessary moment.

Naturally, success does not depend only on these qualities. It is important to realize that there are no extra skills when investing in a high-risk market. You never know at what point external circumstances and your knowledge may come together to bring you insight.

What the Life Path of a Venture Capitalist Looks Like

A venture capitalist has several options for development strategies in the market. In many ways, it is determined by personal development path and logically grows out of the answer to the question, “Why am I entering this market?”

For some people, curiosity becomes the determining factor – they want to be in the trend of new technologies and solutions, actively participate in market shifts, and play the so-called “Big Game.”

So, for example, there are two operational projects: a marketing agency and a clothing brand. Just imagine that in both cases, an investor doesn’t have the know-how or a digital product, a unique business scheme that could turn the market around. These projects live and function within the market. But in the role of a venture investor, they can rise above the market, to the level of the industry, and influence that level.

If an investor chooses such a path, he can move along the diversification of his portfolio: he can add more different projects to his portfolio and distribute assets to different startups. It is believed that you need at least 15-20 projects to make a profit.

Another way is to create a venture fund. One of the main advantages of a venture fund over private equity is risk sharing. A venture fund invests in a portfolio of companies, which reduces the likelihood of losing all capital if one of the companies fails.

In addition, venture funds usually have an expert team that has experience working with early-stage companies and can provide strategic guidance and support. Funds also often have access to a wide network of connections and resources, which can be helpful to companies as they grow. They can help bring companies together with partners, customers, and other investors.

There are some cases when investors choose to go in the opposite direction: they refuse to diversify their assets or do so minimally, investing maximum financial or personal effort in one particular project.

There may be many reasons for this behavior: the investor simply “falls in love” with the project or sees exceptional potential in it. When the project grows, the investor may go to “work” for it – become a managing partner or an operating director. This way is suitable for investors who wish to reduce risks and receive stable profits.