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VC - Venture Capital
According to Morgan
Stanley Global Wealth Management, Venture capital
(VC) is
financing provided by wealthy independent
investors, banks, and financing companies to help new
businesses get started and grow.
In return for the money they
put up, also called risk capital, the investors may play a role
in the company's management as well as receive some combination
of equity, profits, or royalties.
According to
enterpreneur.com, Institutional venture
capital comes from professionally managed funds that have $25
million to $1 billion to invest in emerging growth companies.
It is appropriate for: High-growth companies that are
capable of reaching at least $25 million in sales in five years.
Best Use: Varied. From financing product development to
expansion of a proven and profitable product or service.
Cost and Funds Typically Available:
Expensive. Institutional venture capitalists demand
significant equity in a business.
The earlier the investment
stage, the more equity is required to convince an institutional
venture capitalist to invest. The range of funds typically
available is $500,000 to $10 million.
Ease of Acquisition: Difficult.
Institutional venture capitalists are choosy. Compounding the
degree of difficulty is the fact that institutional venture
capital is an appropriate source of funding for a limited number
of companies.
According to the National Venture Capital
Association, located in Arlington, VA, Venture Capital is money
provided by professionals who invest alongside management in
young, rapidly growing companies that have the potential to
develop into significant economic contributors.
Venture capital is an important source of
equity for start-up companies.
Professionally
managed venture capital firms generally are private partnerships
or closely-held corporations funded by private and public
pension funds, endowment funds, foundations, corporations,
wealthy individuals, foreign investors, and the venture
capitalists themselves.
Venture capitalists generally:
- Finance new and
rapidly growing companies;
- Purchase equity
securities;
- Assist in the
development of new products or services;
- Add value to the
company through active participation;
- Take higher risks
with the expectation of higher rewards;
- Have a long-term
orientation
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