Venture Capital is the business of establishing
an investment fund in the form of equity financing via investments in the common
stocks, preferred stocks and convertible debentures of various companies. These
companies are seen to have a high growth potential and are able to be listed on
the stock exchange in order to gain the highest returns in dividends and capital
Venture capital provides more than just money - it provides management experience, hands on assistance, Board membership, networks of contacts for further funding, identifying key managers and marketing technology. Professional venture capitalists act as mentors and may provide support on management and technical issues to assist the company to realise its potential.
The venture capitalist acquires an agreed portion of the equity of the investee company in return for the invested funding. Equity finance offers the significant advantage of having no interest charges. It is patient capital that seeks to gain a return via capital gain.
Venture capital investors are therefore exposed to the risk of failure of the company, thus the venture capitalist must plan to invest in companies which have the ability to grow quickly and successfully and provide a higher than average return to compensate for the risk.
he venture capitalist looks for companies with superior products or services targeted at niche markets which are growing or untapped with a defensible strategic position. Venture capital managers look for defensible research and development.
Venture capitalists manage the risk by only investing in businesses which fit their investment criteria and after having completed extensive due diligence.
Venture capitalists are high risk investors and in accepting these risks they require a higher return on their investment.
Venture capitalists must be confident that the investee company has a management team to achieve its stated business plan goals. Venture capitalists do not seek managerial control but if needed will assist with putting in place appropriate key personnel.
Venture capitalists need to see a route to exit from the investment at the appropriate time in order to provide a return to their own investors. For the investee companies this is likely to be a public listing on NASDAQ or an equivalent exchange, but could also be a trade sale to a strategic partner.
Refer the following web sites for more information
http://www.vfinance.com/ - Venture capital news and resources