Venture capital (also known as private equity) investing is all about taking risks with your money. On a scale of one to ten, it is a solid nine – far more risky than the Building Society account but not as bad as gambling your fortune on the National Lottery. Professional venture investors (business angels) rationalise the risks involved by talking about their search for the ‘Home Run’. They know that of ten investments, five or so will do ok, four will fail and one, if they’re lucky will be the next big thing since sliced bread - the home run.

As well as the potential financial reward, venture investing can also be incredibly inspiring and fun. For many private investors, who style themselves as ‘Business Angels’, it is as much about giving back, helping someone with a dream to realise it. It was a Business Angel who backed folding bicycle-maker Brompton Bicycles, helping the firm transform from an amateur affair producing a handful of bikes in the mid-1980s to a sleek design-led success story producing over 25,000 of its trademark folding bikes this year.

So what is involved in venture investing? Well, you have to decide where to invest, how much to invest and for how long? You have to set out your expectations and make clear with the entrepreneur how much you actually want to get involved. The average angel investment is around £25,000, with investment levels starting as low as £10,000. There are also attractive tax breaks available, under government-approved schemes like venture capital trusts and enterprise investment schemes that can shelter investment profits from capital gains tax, offer income tax relief and are even exempt from inheritance tax.

Most investors will back an individual or a management team as much as the business idea. Rachel Elnaugh, the former Dragon from the BBC’s Dragons’ Den, says that a simple rule that she used was never to back a start-up company if she didn’t feel comfortable with the people driving it. “You are always looking for the person, the attitude and the outlook of the person. Ideas are ten a penny but the person that can make it happen is very rare,” she says.

Once you make the decision to invest, more choices spring up. For instance, if your stake gives you a sizeable percentage of the company’s shares you may want a seat on the board or at least the right to attend board meetings as a non-voting observer to ensure that your interest are being served as well as those of the company. Alternatively, you might simply want to remain a silent investor, content in the knowledge that you can pick up the phone to the chief executive at any time for the latest update.

One of the most rewarding parts of being an angel investor is becoming a mentor to the entrepreneur. Starting up a new venture is a daunting and often a lonely experience. Advice and support is invaluable. Entrepreneurs will fall over themselves to have someone with experience to bounce ideas off – just see how the successful entrepreneurs pitching on Dragons’ Den series select their Dragons as much as for their business knowledge and contacts as for their money.

Current Dragon Deborah Meaden mentors not only her investments from the programme but also young entrepreneurs on the Prince’s Trust youth scheme. She told me how mentoring twentysomethings challenges her as much as appearing on TV. “I utilise some of the skills that I don’t use very much now: the detailed, practical sklls and I enjoy young people’s questions,” she says. “As you get further up the scale you get less people challenging you, asking you to explain why you are saying something. But that [questioning] is really healthy.” It does not mean that business angels have to know all the answers or even get involved in mentoring. Meaden advises that mentors have a tightrope to walk between offering advice and making decisions. “You could end up undermining the individual,” she said, before adding: “I don’t think everybody is suited to mentoring. If you feel you have something to offer of course it’s a good thing.”

By Richard Tyler, Enterprise Editor of The Daily Telegraph