Essay - Venture Capital Introduction: if There is One Universal Attribute that...

Venture Capital

Introduction:

***** there is one universal attribute that applies to all inves*****rs, it is the undying thirst for higher returns. Venture capital (VC) is founded on th***** fundamental premise, as it h***** great potential to provide ***** far in excess of conventional met*****ods of investments. What makes VC so important is that it is often the only source of funds to new entrepreneurs, as banks and financial institutions provide finance only against securities or guarantees. VC has grown from a sm*****ll investment pool in the 60s ***** 70s to a full-fledged ********** tool and a key element in corporate and institutional investment portfolio.

***** term 'venture *****' ***** often used interchangeably with private equity investing, which refers to venture investing ***** buy out. The as*****nishing growth and successes of new generation companies such as Apple, Intel, Federal Express, Microsoft, Yahoo and Cisco is a sterling tribute to VC, *****s these ***** had received VC in their early stages of development. ***** singular difference between VC and other forms of financing is that VC provides money to firms whose success is not guaranteed; in fact, there had been instances when firms ***** to be funded even for incorporation.

***** *****s are characterized by high uncertainty levels in terms of technology r*****k, product market risk, management risk ***** liquidity risk. A major dist*****ction is the relationship between investor and investee in a VC transaction. While on a commercial plane, they ***** bound by the interest in mutual economic benefit, on a legal plane the *****terests can diverge. For the investor, profits and timely exit from the venture is of paramount importance. The ***** would like to retain and ensure her c*****tinued role in the company. This requires ***** inves*****r to respond to the challenges of various exigencies that may arise after the funding process is set in motion. Unlike the conventional lending methods, the only protection for the investor is to ensure ***** ***** venture stays on track and succeeds in time, which may prompt the investor to exercise controlling rights when things go wrong. This is perhaps ***** single biggest challenge that can make or break a venture capital transaction.

***** common perception of a venture c*****pitalists are that of a rich financier who is on the look out f***** start-up ventures ***** put money ***** ***** hope of getting abnormal pr*****its at some point in future. ***** reality ***** far different - professional venture capital firms are closely held corporations or private partnerships, funded by public and private pension *****, endowment funds, *****, wealthy individuals and foreign investors. Not all venture capitalists invest in start-ups; ***** fact a rational venture capitalist will strive to have a b*****lanced portfolio that will level ***** *****s and ensure a net positive return. VC ***** also specialize in other *****vestment alternatives such as initial public offerings, mergers ***** acquisitions.

Venture capital is a form of ***** finance, which took solid roots in the post world war II years, especi*****y in the United