eli5: What’s a venture capitalist?
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Venture capitalists provide really early investment in startups. It’s really risky (you’ll probably loose your entire investment) but when it succeeds the payoffs are enormous.
Let’s say you were a founder or really early employee of a company a few decades ago. You hit the jackpot and your company went public.
So you sell all your options and now your bank account has a few commas before the decimal point (or the other way around if you’re European).
You spend some time partying and playing video games. Then you get bored. What do you do next?
It’s kind of weird to go back to being a programmer at some other company. Maybe they can offer you a few hundred thousand in salary and more stock options but that’s peanuts to you now and you can only work at one company at a time.
Instead you can start playing the VC circuit. You already have a deep expertise in the industry. You’ve gone through all the work. You know the pitfalls. To a brand new startup 50k or a few hundred k is a huge deal. In exchange you get a large number of shares and a seat on the board.
Now you do that with a few startups at a time. If you did your homework well one of them will take off and you get an other huge paycheck. If you’re really lucky that happens a few more times.
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