Venture capital (VC) is a modern type of raising funds for the inwestments and projects. Venture capital was once known also as risk capital, but that term has fallen out of usage, probably because investors don't like to see the words "risk" and "capital" in close conjunction.
Venture capital was instrumental in the success of companies like: Cypress Semiconductor, Apple Computer, Intel, Amgen, GenenTech, Solectron, Cirrus Logic, Federal Express, Au Bon Pain, Gymboree, Brookstone, The Sports Authority and more.
Benefits and limitations
Venture capital (VC) is a form of financing that is provided to startups and early-stage companies with high growth potential. The main benefit of venture capital is that it can provide significant amounts of funding to help a company grow and scale, which can be difficult to obtain through traditional forms of financing such as bank loans. Additionally, venture capitalists often bring valuable industry expertise, connections, and mentorship to the table, which can be helpful for a startup trying to navigate the early stages of business.
However, there are also some limitations to venture capital. One limitation is that venture capitalists typically expect a high return on their investment, which can put pressure on the company to grow quickly and achieve profitability. This can be challenging for some startups, especially if they are still in the early stages of development. Additionally, venture capitalists often take an active role in the company's management and decision-making, which can be challenging for some entrepreneurs. They may also want to exit the company in a short period, which may not align with the founder's long-term vision.
Best developed Venture capital market was located in the USA. It is hard to say when it all started but the year 1978 is the time when Venture capital boom was perceived.
The earliest VC market was noticed in Great Britain in late 40's. This time delay in comparison to the US, was caused by the War in Europe.
Period of time: 5 – 10 years (This is a long term investment. It is required due to the length of enterprise development)
Type of investment: developer invest by share purchase.
Legal forms of Venture capital funds
- Private Limited Partnerships
- Publicly Traded Funds
- Corporate Venture Capital
- Angel Investors
Types of Venture capital funds
- Universal Venture Capital Funds
- Venture Capital Funds Assisted by the Government
- Venture Capital Funds Focused on Early Stages of Enterprise Development
- Company Share Funds
- Private equity investments
- Sahlman, W. A. (1990). The structure and governance of venture-capital organizations. Journal of financial economics, 27(2), 473-521.
Author: Rafał Szkaradek