Studied by 4 people
Venture Capital Financing
It is a form of private equity and a type of financing that investors provide to start-up companies and small businesses that are believed to have long-term growth potential
Venture Capital generally comes from well-off investors, investment banks and any other financial institutions
Back to the 19th century
venture capital is a subject private equity(PE). While the roots of PE can be traced during this time.
after Second World War
Venture capital only developed as an industry
Harvard Business Professor George Doriot
Generally considered the Father of Venture Capital
American Research and Development Corporation (ARDC)
The Father of Venture Capital started this in 1946 and raised a $3.5 million fund to invest in companies that commercialized technologies during WWII
First investment of ARDC
Company that had ambitions to use x-ray technology for cancer treatment
the $200,000 that Doriot Invested turned into $1.8 million when the company went in public in 1955
1955
Year when the company went in public
Features of Venture Capital Investments
High Risk
Lack of liquidity
Long term horizon
Equity participation and capital gains
Venture capital investments are made in innovative projects
Suppliers of venture capital participate in the management of the company
Methods of Venture Capital Financing
Equity
Participating Debentures
Conditional Loan
Venture Capital Process
Fund Raising - Evaluation - Investment - Governing - Exit - Distribution
Fund raising
Source capital from banks, corporations, funds
Evaluation
Evaluate venture opportunities
Investment
Invest capital into enterprise
Governing
Govern business to profitable growth
Exit
Generate liquidate through IPO
Distribution
Distribute returns to investors
Four Phases in the company's development
Idea generation
Start up
Ramp up
Exit
Five Stages in Venture Capital Financing
Seed Stage
Start up stage
First stage
Expansion Stage
Bridge Stage
Advantages of Venture Capital Financing
They bring wealth and expertise to the company
Large sum of equity finance can be provided
The business does not stand the obligation to repay the money
in addition to capital, it provides valuable information, resources, technical assistance to make a business sucessful
Dsiadvantages
As the investors become part owners, the autonomy and control of the founder is lost
It is a lengthy and complex process
It is an uncertain form of financing
Benefit from such financing can be realized in long run only
Importance of venture
It strengthens the capital market which not only improves the borrowing concern but also creates a situation whereby they can raise their own capital through capital market
Venture Capital Financing
is funding provided to companies and entrepreneurs. It can be provided at different stages of their evolution.
Venture Capital Financing
It has evolved from a niche activity at the end of the second world war into a sophisticated industry with multiple players that play an important role in spurring innovation
