Business, Legal & Accounting Glossary
Venture capital (also known as VC or Venture) is money provided as seed funding to early-stage, high-potential, growth companies. The financial capital is more often provided after the seed funding round in the interest of generating a return through an eventual IPO or trade sale of the company.
A form of financing provided by investors to help new businesses grow. A venture capitalist usually receives a substantial portion of the businesses equity in return for capital investment.
Venture capital (also known as VC or Venture) is money provided as seed funding to early-stage, high-potential, growth companies. The financial capital is more often provided after the seed funding round in the interest of generating a return through an eventual IPO or trade sale of the company.
Venture capital is a source of funding for a high risk, but potentially high return, new business venture.
Most venture capital is obtained from one or more venture capital firms, generally in exchange for an equity stake and a measure of control. Traditionally, venture capital has been considered difficult to obtain and only proven firms with a capable management team could secure such financing. In the dot com boom, speculative investment reached such a crescendo that far more money flowed from investors into venture capital funds. More venture capital dollars looking for businesses to fund in the late 1990s made obtaining venture capital backing much easier, at least for a while. For venture capital investors, some of those speculative deals were very successful.
Many firms with venture capital backing at the time quickly went public, cashing out the venture capital investors. Subsequent shareholders did not always share the venture capital investors’ success, with some poorly conceived startups failing after their IPO. In both spoken and written business language, venture capital is often abbreviated VC.
A venture capital investor or venture capitalist will generally assume high risk in return for a perceived high reward. Vinod Khosla is perhaps the best-known venture capitalist of the current era.
JP Morgan should perhaps be named as a leading venture capitalist of the latter half of the nineteenth century. The House of Morgan financed Thomas Edison’s lightbulb, the founding of General Electric, and the Niagara Falls hydroelectric project (using Nicola Tesla’s alternating current technology and Westinghouse equipment). He also was a central figure in many railroads and in some of the trusts of that era.
Warren Buffett is often mentioned as a well-known investor or financier, but few would label him a venture capitalist. He prefers to avoid new technologies and instead favors well-established businesses, especially when they are undervalued. He is a value investor.
A start-up company with a solid business plan and an innovative product will usually not have any problems attracting venture capital.
Venture capital played a strong role during the dot com boom, and many investors suffered considerable losses when the bust occurred.
Accredited Investor
Angel Investor
Buyout
Deal Flow
IPO
IRR
Fund Valuation
Limited Partnership
Mezzanine Debt
Private Investment in Public Equity
Seed Funding
Venture capital is funding and/or other resources provided to a start-up business.
A venture capital investor or venture capitalist will generally assume high risk in return for perceived high reward. Vinod Khosla is perhaps the best known venture capitalist of the current era.
JP Morgan should perhaps be named as a leading venture capitalist of the latter half of the nineteenth century. The House of Morgan financed Thomas Edison’s lightbulb, the founding of General Electric, and the Niagara Falls hydroelectric project (using Nicola Tesla’s alternating current technology and Westinghouse equipment). He also was a central figure in many railroads and in some of the trusts of that era.
Warren Buffett is often mentioned as a well known investor or financier, but few would label him a venture capitalist. He prefers to avoid new technologies and instead favors well established businesses, especially when they are undervalued. He is a value investor.
Venture capital can be invested in a business at various stages of its development. Seed capital is a small amount of initial capital invested with the goal of proving a business concept. Once a product is in development and market share is being increased, the amount of venture capital invested grows significantly, typically over several rounds of financing.
A business that obtains venture capital funding gains access to the capital provider’s network of experts, who can provide advice on how to run the business. Furthermore, the company may be able to access additional tranches of investment at a later date, either through the original venture capital firm or its network of other investors.
A potential disadvantage for investors is that venture capital investors typically want one or more board seats and may force changes in the business’s management structure. Furthermore, because venture capital can only be obtained in exchange for a significant portion of the company’s equity, the firm’s founders may find that their eventual earnings from selling the entity are lower than expected.
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This glossary post was last updated: 13th April, 2022 | 0 Views.