What is VC (Venture Capital)? Explaining the Job Description and Characteristics of People Who Are Suited for It

VC (Venture Capital) is a profession that supports the growth of startup companies through investment. Since specialized knowledge and skills are required for investment decisions and company support, it is important to understand what kind of people are suited for this work.

This article provides a detailed explanation of the basic knowledge of VC, job descriptions, required skills, and the characteristics of people who are and are not suited for VC.

We will share useful information for those considering a career change to the VC industry, so please use it as a reference.

What is VC (Venture Capital)?

“VC (Venture Capital)” is an investment company that invests in companies with expected growth potential and supports their business through funding. “Venture” means “adventurous entrepreneurship,” and “Capital” means “capital/funds.”

The VC business model involves profiting by selling unlisted shares when investee companies go public (IPO) or are acquired by other companies (M&A).

VCs raise funds from financial institutions, corporations, and investors to form and manage funds (investment trusts). Beyond providing capital, they also offer management support and strategic advice to enhance corporate value, boosting the growth of their investee companies.

For startup companies, VCs are important funding sources that provide management know-how and networks, and are indispensable partners for business growth.

Main Types of VC

VCs are classified into several types based on their parent organization, purpose, and management policy. Here is an explanation of each type and its characteristics.

Financial Institution-Based Venture Capital

These are backed by financial institutions such as banks, securities firms, and insurance companies. They are capable of large-scale investments leveraging abundant financial resources, and are characterized by a track record of investments across a wide range of fields. They may also focus on specific industries or fields with expected growth.

Government-Based Venture Capital

Operated by national or local governments, these VCs aim to promote domestic industry development and technological innovation. They are characterized by investments closely tied to policy, with a focus on growth support.

University-Based Venture Capital

These VCs make investments aimed at the practical application of innovations born from academic research and technology development. They are particularly focused on investing in and supporting startup companies that commercialize research results.

Corporate Venture Capital

Operated by large corporations, these VCs aim to promote their own growth and incorporate new technologies. They often make strategic investments with an emphasis on synergies with their own business.

Regional Venture Capital

Backed by specific prefectures or municipalities, these VCs aim for economic revitalization and industry development. By providing funds to promising companies in the region and supporting their business growth, they promote the development of the regional economy as a whole.

Overseas Venture Capital

With the enormous investment scale of overseas companies, these VCs support businesses from a global perspective. Having bases outside the country, their strength lies in the ability to leverage global networks to provide cross-border growth opportunities.

Independent Venture Capital

Without belonging to any specific corporation or financial institution, these VCs conduct flexible investment activities based on their own funds. Because they do not depend on a specific parent company, they are characterized by the ability to respond to diverse business models and growth areas.

In recent years, investment track records have been increasing within Japan as well.

VC Job Descriptions

VCs are not merely fund providers; they play an important role in supporting the growth of investee companies through activities such as “discovering and evaluating investment targets,” “executing contracts and investments,” and “post-investment support activities.”

Discovering and Evaluating Investment Targets

The primary task of VC work is to identify promising companies for the future. To this end, VCs participate in seminars and events where entrepreneurs and startups gather, staying abreast of the latest business trends while expanding their network. It is also important to leverage networks with industry players to gather information on promising companies.

When making investment decisions, they analyze multiple factors such as industry growth potential, the company’s position in the market, the quality of management, and the uniqueness of the business model.

They also carefully evaluate the financial situation and competitive advantages in the market, and select companies with expected growth potential after considering risks and returns.

Executing Contracts and Investments

Once an investment target is determined, the contract procedures are initiated. First, a Non-Disclosure Agreement (NDA) is signed, and a term sheet summarizing the basic investment conditions is created to obtain the company’s agreement.

Next, due diligence is conducted, involving a detailed investigation including financial status and legal risks. After making the final investment decision, a formal contract is signed and funds are provided, completing the investment.

Through this process, the VC’s full-scale support for the company’s growth officially begins.

Post-Investment Support Activities

After investment, support is provided from multiple angles to enhance corporate value. Specifically, advice is given on formulating management strategies and financial management, and business growth is supported by introducing appropriate human resources and business partners.

It is also important to hold regular meetings to understand business progress and find solutions to challenges faced by investee companies. Additional support is provided as needed to promote the sustainable growth of the company.

Skills Required for a Career Change to VC

VC work covers a wide range of areas and requires extensive knowledge and experience. To respond flexibly to various situations, skills such as “financial analysis ability,” “strategic planning ability,” “communication skills,” and “industry knowledge and networking ability” are necessary.

Financial Analysis Ability

Advanced analytical skills are essential to accurately understand the financial status of investee companies and assess their future growth potential.

As a minimum skill set, the ability to accurately read financial statements such as balance sheets and income statements, and to evaluate the soundness and profitability of a company using indicators such as current ratio, fixed ratio, profit margin on sales, and return on assets is required. This enables higher precision in investment decisions and minimizes risks.

Strategic Planning Ability

Not only providing funds, but also supporting the formulation of business plans and growth strategies for investee companies and providing accurate advice is an important role of VC.

Therefore, the ability to formulate optimal strategies from multiple perspectives, including market trends, competitive analysis, and business model evaluation, is required. By leveraging logical thinking and flexible ideas to accelerate the growth of companies, the value of VC is enhanced.

Communication Skills

Without advanced communication skills, it is impossible to build trust with investees and provide appropriate advice and support. In particular, since startup companies face many challenges during their growth phase, the ability to provide appropriate human resources and solutions is crucial.

Also, throughout VC work, close coordination with internal and external parties is necessary, and smooth communication is directly linked to acquiring investment opportunities and the speed of decision-making.

High Industry Knowledge and Networking Ability

To identify promising investment targets and make appropriate investment decisions, a deep understanding of industry trends and growth areas is required. Especially in fields where the speed of technological innovation is fast, quickly catching up with the latest trends and new technologies is important.

Furthermore, a strong network with entrepreneurs, managers, and other VCs contributes greatly to discovering quality investment cases and supporting the growth of investees.

Characteristics of People Suited for VC

To achieve results in the rapidly changing startup industry, a high enthusiasm for learning along with a strong sense of responsibility and decisiveness are required. It is also important to have an interest in a wide range of industries and a flexible attitude toward understanding business.

Let’s look at the characteristics of people suited for VC.

People Who Are Curious and Enthusiastic About Learning

A characteristic of people suited for VC is their insatiable curiosity and dedication to continuous learning. In the world of investment, a great deal of information flows about market trends and company growth potential, so it is also important to proactively absorb knowledge and maintain a broad perspective.

In addition, the ability to show interest in new businesses and technologies and assess their growth potential is also required. People who can passionately devote themselves to supporting companies that pioneer the future and assisting their success are well-suited.

People With a Strong Sense of Responsibility and Decisiveness

A strong sense of responsibility is indispensable because investment decisions involve large sums of money and can determine the future of a company. Also, since investment opportunities can arise suddenly, quick and accurate judgments must be made.

The ability to assess situations calmly without being swayed by market fluctuations and make quick decisions is required. Furthermore, taking responsibility for one’s own decisions and maintaining an attitude of making optimal choices leads to success.

People With an Interest in a Wide Variety of Industries

Since investments span a wide range of industries and fields, interest in and understanding of diverse industries is necessary. An attitude of showing interest in the characteristics, challenges, and latest trends of each industry and actively incorporating new business models and technological innovations is required.

By absorbing knowledge from different fields and making investment decisions from multiple perspectives, you can more effectively support the growth of investee companies.

Characteristics of People Not Suited for VC

While VC work is rewarding in that it is involved in the growth of startup companies, there are also many situations that require long working hours and high judgment. Therefore, it is not suited for people who prioritize stable working conditions, those who seek short-term results, or those who cannot act proactively.

Let’s check the characteristics of people not suited for VC.

People Who Value Work-Life Balance

VC work centers on close interactions with investees, and it is a job where late-night work, holiday work, and overtime are likely to occur. Since it takes time for investment results to materialize, it is necessary to simultaneously advance multiple projects. This increases the volume of data collection and analysis work, resulting in a larger overall workload.

For people who value work-life balance and want to work within fixed working hours, this is a harsh environment, and it will be difficult to continue working.

People Who Seek Short-Term Results

Since it is said to take 5 to 10 years for investment results to materialize, VC work is not manageable for people who seek results in a short period of time. Since it takes time for a company to grow, calmness is also needed to provide steady support and make judgments at the optimal timing.

People who can support the long-term growth of a company and envision their own career and life enrichment beyond that are suitable.

People With a Passive Attitude

To grow investee companies and lead them to successful IPOs or M&As, the ability to think and act independently is required. Rather than being passive, proactiveness in identifying company challenges and proposing solutions is important.

In particular, since roles in startups are fluid, a passive attitude makes it difficult to respond appropriately, so people who can make independent judgments and act flexibly tend to thrive.

[Startup Perspective] Benefits of Receiving Investment from VC

Receiving investment from a VC is a significant advantage for startup companies in accelerating business growth. It not only provides funding but also contributes to strengthening the management foundation and enhancing corporate credibility. Let’s take a detailed look at the benefits of receiving investment from VC.

No Repayment Required, Less Burden

Fundraising from VC is an investment made in exchange for equity, and in principle, no repayment obligation arises. Companies can concentrate the raised funds into business expansion and research and development without feeling the pressure of repayment.

Even if the business does not proceed as planned, the risk of incurring debt can be reduced, enabling more ambitious business development. However, since a portion of the shares is transferred, the aspect of restricted management freedom must also be considered.

Management Support Can Be Received

VC plays the role of not only a fund provider but also a management partner that supports the growth of companies. Many VCs are composed of specialists with extensive knowledge and experience in investment, management, and specific industries. Therefore, they provide specific advice covering all aspects of management, such as business strategy formulation, marketing, and organizational development, to their investee companies.

Additionally, by leveraging the extensive networks that VCs possess, there are cases where introductions to new business partners, alliance partners, and talented personnel can be received. Such hands-on support is a great help for startups with limited resources.

Social Reputation Is Enhanced

To receive investment from a VC, it is necessary to pass a rigorous screening regarding the future potential of the business and the abilities of the management team. Therefore, the fact of having received investment from a VC objectively proves the company’s growth potential and reliability.

Improved social credibility can work advantageously when building relationships with new business partners or when receiving additional financing from financial institutions.

Furthermore, it becomes a factor in enhancing the company’s appeal for recruiting excellent human resources, providing multi-faceted support for business growth. The company’s brand image improves, and the foundation for smoothly advancing future business development is strengthened.

Funding Methods Other Than VC

Funding methods for startup companies are not limited to investment from VCs. It is important to consider various options depending on the company’s stage of growth, business content, and required funding amount. Here we explain funding methods other than VC and the differences from VC investment.

Loans from Financial Institutions

This is a method of borrowing business funds from financial institutions such as banks, credit unions, and the Japan Finance Corporation.

Unlike VC investment, repayment obligations and interest arise, but the major advantage is that management freedom can be maintained since there is no need to transfer shares. In particular, the startup loans from the Japan Finance Corporation are known as a system that is easy to use even for startup companies with limited track records.

However, to receive a loan, the validity of the business plan and repayment ability are rigorously screened, and collateral or guarantors may be required in some cases. It is a method suited for companies at a phase where a stable revenue model has been established.

Angel Investment

This is a method where wealthy individual investors provide funds to early-stage startup companies.

Compared to VC, it is characterized by quick investment decision-making and the ability to handle relatively small amounts of fundraising. Angel investors are often former entrepreneurs or specialists in specific fields, and in addition to funding, support such as management advice based on their own experience and introductions to connections can sometimes be expected.

Since it is left to the individual investor’s judgment, gaining empathy for the manager’s vision and passion as well as the business content is important. The amount raised tends to be smaller than with VC, but it becomes a valuable source of funding in the seed stage.

Crowdfunding

This is a method of raising small amounts of funds from a large number of unspecified people through an internet platform.

Multiple forms exist, including “purchase type” where supporters purchase products or services, “donation type” where people purely donate without receiving project output, and “equity investment type” where investors acquire company shares.

It is characterized by the ability to expect effects such as test marketing of products and services and the formation of fan communities simultaneously with fundraising.

The key to success is widely disseminating the appeal of the project and its social significance to gain broad empathy. It is generally the case that funds are received only when the target amount is reached.

Subsidies and Grants

These are funds provided by the national government, local governments, and public institutions to achieve specific policy objectives. Unlike loans or investments, in principle there is no repayment obligation, allowing businesses to be promoted while suppressing the company’s own financial burden.

The eligible business fields and application requirements are defined in detail, and detailed document preparation such as a business plan is required for the application.

While the procedures can be complicated and it may take time until adoption, non-repayable funds greatly contribute to the stability of the financial base. Also, the fact of being adopted by a public system has the effect of enhancing corporate credibility.

Conclusion

VC is not merely a fund provider but a partner that builds the growth of startup companies together. A diverse range of skills such as financial analysis and strategic planning is required, but it is a rewarding job for people who can act proactively and enjoy new challenges.

On the other hand, a long-term perspective and high expertise are required, and it is also an environment where passive attitudes make it difficult to thrive. For those who want to experience the thrill of pioneering the future of companies together in a rapidly changing environment, we encourage you to take on the challenge of the VC world.