Funding Sources and the Future of Venture Capital
Venture capital is a type of private equity funding that is offered by venture capital funds or venture capital companies to emerging or small businesses that are deemed to have high development potential, who have not yet proved themselves on a global scale. The term venture capital also refers to private investors capital raised for the purposes of buying and developing specific technologies or systems, often to help these types of businesses to scale up before going public. For example, in the past venture capital has been used to fund technologies for use in the internet and other emerging markets. Now venture capital companies and angel investors are looking more to acquire smaller companies in different industries that seem to have the potential to turn a profit quickly and exit the market with a high profit margin.
Venture Capitalists typically seeks to provide seed financing for startup companies in the IT, Internet and telecommunications industries. Many venture capitalists are also starting to look at the health care industry as another area of great investment. Venture investment firms in the health care field have seen growth in the past few years, as the sector continues to expand into new medical technologies and therapeutic treatments. As this type of investment grows and becomes more common within the Venture Capital Industry, there are many factors investors will consider when making this type of investment.
Many factors can affect the success of a venture capital investment. One of these factors is access to credit. Since venture capital companies usually have only a small amount of capital available to them, they are not likely to offer large sums of money to new business owners unless they are absolutely sure that the company will be successful. This means that it is very important for potential investors to provide clear information to investment banks about their business plan, plans for raising additional capital, business history and expected profits in order to attract attention from investment banks.
Investors who want to raise capital that is not based solely on the basis of their business plan should seek out venture capitalists willing to put their money where their mouth is. An investment banker will take a look at an entrepreneur’s balance sheet, but he or she is not going to do anything else. In order to be serious about obtaining venture capital, an entrepreneur needs to have some other assets – most importantly, equity – in order to meet with investment bankers. Equity represents a significant amount of risk to an investor, but it also represents a significant amount of potential profit.
Private equity. Venture capital firms have access to funds in the form of private equity. These funds can be used to purchase a substantial amount of private company stock. If the company makes money, the venture capital firm can move its holdings to additional private equity funds. Once again, if the venture capital firm’s investments in the company produce losses, it may have to give up some of its invested funds in order to recoup losses.
State and local governments. Venture capitalists are starting to target state and local government sources as potential funding sources. The prospect of injecting capital into pension funds for public employees is an attractive one. The problem, however, is that state and local government employees tend to have a very low strike rate when it comes to raising money from venture capitalists. While this may not always be the case, given the overall difficulty of sustaining the existing pension fund structure, venture capitalists may not be as willing to risk putting their money into pension funds that may not necessarily yield a high return. In any case, if venture capitalists cannot raise private equity funds, they will have to look to other sources.