Lesson 19
New Industry

Venture capital (VC) is capital provided by outside investors for financing of new, growing or struggling businesses. A venture capital fund is a pooled investment vehicle that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans.

Venture capital differs substantially from ‘traditional’ financing:

– Funding provided to new firms with potential for above-average growth.

– Often provided to startup and other emerging enterprises because they lack the collateral, track record, or earnings required to get a loan.

– The investment, typically requiring a high potential of return, is structured so that it can be liquidated within three to seven years

– Then an initial public offering may take place, or the business merges or is sold, or other sources of capital are found.

– The entrepreneur relinquishes ownership and control of the business.

– VCs typically expect a 20—50% annual ROI at the time they are bought out.

– Typical investments range from $500,000 to $5 million.

– Management experience is a major consideration in evaluating financing prospects.