The Motley Fool: Venture Capital Explained


Ask the Fool: Venture Capital, Explained

Q: What is a venture capitalist? — MB, Whitefish, Montana

A: These are investors who often take stakes in young and small companies that need cash injections to help them grow. Venture capitalists (“VC”) will hear many arguments for their money, such as entrepreneurs with start-up companies. When they decide to invest, to buy a partial stake in a business, they often offer advice to its management as well, to help the business grow. A venture capital investment is generally not long term. Ideally, the small business will grow well and, after a few years, will either be acquired by another company or enter the open market via an initial public offering (IPO). At any time, venture capitalists can cash in, making a handsome profit. For example, Sequoia Capital invested $60 million in WhatsApp early on and walked away with $3 billion when it was acquired by Facebook. Meanwhile, Greylock Partners has invested $4.9 million in Airbnb – a stake worth around $1.4 billion when Airbnb went public in 2020.

Q: Is now a good time to start contributing to a 401(k) account? — PW, Forest Acres, SC

A: It’s pretty much always a good time. Sure, the market has been particularly tough lately, but when stock prices go down, you’ll get more for your money. And over the long term, the market has always gone up. Be sure to contribute at least enough to qualify for all available matching funds from your employer, as this is free money. Also, consider saving and investing a lot more than that in your 401(k) or elsewhere — you could aim for 20% or more of your income — to build a big nest egg for your future.

Fool’s School: Six Clever Quotes About Investing

A great way to become smarter about investing — and ideally, get better investment results — is to learn from successful, savvy investors. Here are some insightful quotes attributed to some of them:

Burton G. Malkiel: “…put time on your side. Start saving early and save regularly. Live modestly and do not touch the money that has been set aside. It reminds us how simple successful investing can be. It still takes discipline.

Warren Buffett: “The purse is a device that transfers money from the impatient to the patient.” A successful investment does not require a lot of buying and selling. For best results, expect to wait many years while your investments grow.

Christopher Davis: “A 10% drop in the market is quite common – it happens about once a year. Investors who realize this are less likely to panic sell and more likely to stay invested, benefiting from the wealth-creating power of stocks. Don’t panic and expect volatility. Stay the course.

Peter Lynch: “Thousands of experts study overbought indicators, oversold indicators, head-shoulder patterns, put-call ratios, Fed policy on money supply, foreign investment…and they can’t predict the markets with useful consistency no more than the gizzard pressers could tell the Roman emperors when the Huns would attack If you invest in simple and inexpensive S&P 500 or other index funds, you are likely to outperform many Wall Street pros over long periods of time.

Benjamin Franklin: “An investment in knowledge generates the best interests.” The more you learn, the better you can do. Try to read a lot about investing and personal finance topics. You will find a lot of wisdom in newspapers, magazines, books and online articles. Invest in yourself.

Benjamin Graham: “The best way to measure your investment success is not whether you beat the market, but whether you have a financial plan and behavioral discipline in place that can get you where you want to go.” Amen. *

– distributed by Andrews McMeel Syndication


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