Adventure Capitalist

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Definition: Adventure Capitalist


Adventure Capitalist

Quick Summary of Adventure Capitalist


An entrepreneur who helps other entrepreneurs financially, and often plays an active role in the company’s operations (such as by occupying a seat on the board of directors).




Full Definition of Adventure Capitalist


Adventure Capitalists are entrepreneurs who invest money in the companies of other entrepreneurs. Like traditional venture capitalists, they invest to make money. But unlike professionally managed venture capital funds, they invest their own money instead of money others have placed in their care. Usually, the money they invest is money they made by selling a company they started and made grow.

Adventure capitalists fund new enterprises for a combination of reasons. They know that a wise investment can be very profitable. They believe their experiences as entrepreneurs help them to identify attractive deals. Also, venture investing gives them something they cannot get elsewhere: the chance to relive the excitement they experienced in getting their own businesses started.

For many adventure capitalists, this last reason is the telling motivation. The exhilaration they experienced when starting their business may be waning. They may operate a public company that is long past its start-up stage or run a division of a large company that acquired their business. Many have retired from daily management activities. For each, there is something about making a new business succeed that draws them into adventure investing.

Like other investors, adventure capitalists expect to receive and study a business plan before they proceed. They usually also require a seat on a company’s board of directors and reports from management on the company’s progress. Their active participation is important to them. They expect to be consulted by management and to have their advice heeded.

Adventure capitalists do not see as many deals as venture capital firms do. And, while most investigate companies before they invest, few do so as thoroughly as a sophisticated venture capital firm would. This, coupled with the fact that they do not have to consult with others before making an investment, often means a faster response on a deal.

The smaller deal flow and the part-time nature of their investment activity mean that entrepreneurs can sometimes get funding from an adventure capitalist they could not otherwise obtain from a venture capital firm. This is particularly true in smaller financings. Many venture capital firms, with their high administrative costs and large deal flows, will only invest in increments of $1 million or more. Some require even higher minimums.

Adventure capitalists are not so constrained but they sometimes lack the financial resources to do follow-on fundings as a company grows, even those they have agreed to make. Their lack of investment experience can also cause problems for a company. If the company is delayed in meeting a milestone, an adventure capitalist may feel misled and become difficult to work with — for example, he may refuse to provide follow-on investments he has agreed to make. This may happen even when the company’s problems are not severe.

An investor’s reluctance to provide agreed-upon future funding can be catastrophic because it forces management to divert its attention to raising money when other aspects of the company’s business need managing. Raising funds can be very difficult with an unwilling investor in a company. His refusal to meet his funding commitment often frightens away other investors. On occasion, he may even have contractual rights that prevent others from investing.

Even binding contracts that require an investor to provide follow-on funding may not be enough to prevent problems. The expense and effort required to enforce those contracts against an unwilling investor may be too great for a company to afford. The result can be an impoverished company forced to begin searching for money while struggling with a dissatisfied adventure capitalist.

To protect against this, entrepreneurs should investigate an adventure capitalist’s reputation and ability to provide promised funding before they accept his money. If he offers to fund the company’s needs in stages, management should ascertain how he intends to meet his funding commitments. If he must borrow or liquidate other promising investments to fund the company in later stages, he may become difficult to deal with when the money becomes due even if the company meets or surpasses its benchmarks.

By the same token, the adventure capitalist who meets his commitments can provide a company with much more than money and he can do so when the company cannot attract traditional venture capitalists because its funding requirements are too low or its business is too new. The business savvy of a good adventure capitalist can often supplement management’s experience in areas important to the company’s growth and profitability. Having grown a company before, the adventure capitalists can often help management anticipate problems before they develop and counsel management on systems and organizational questions important to preparing a company to grow and attract future investors.

The advantages and disadvantages of seeking funding from an adventure capitalist can be summarized as follows:

Advantages:

  • Actual, hands-on experience in managing a growing a company can help management anticipate company needs and manage growth more effectively.

  • Willingness to make investments in increments of less than $1 million.

  • Willingness to spend time with the company can translate to free or reduced rate management assistance.

  • Access to their personal network of business contacts can expand the company’s non-financial resources.

Disadvantages:

  • Because their financial resources are often more limited than traditional venture funds, they may do fewer deals and are often hard to find.

  • Their lack of experience as investors may make them more difficult to deal with when the company fails to make its business plan objectives or has other problems.

  • They sometimes do not have the financial resources to provide agreed-upon future funding.

  • As with any individual, if personalities do not fit they can become difficult to deal with on the company’s board of directors.

Where can you find an adventure capitalists? Unlike traditional venture capital funds, there are no general compilations of adventure capitalists that make the job of identification easy. Networking in your local business and technology communities is usually the best way to identify those adventure capitalists who are actively looking for investments. Often, local bankers, accountants, attorneys, and other entrepreneurs can help a company identify an appropriate adventure capitalist and provide introductions.


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Definition Sources


Definitions for Adventure Capitalist are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 11th August, 2022 | 0 Views.