venture capital

(noun)

money invested in an innovative enterprise in which both the potential for profit and the risk of loss are considerable.

Related Terms

Examples of venture capital in the following topics:

  • Defining Venture Capital

    • Venture capital is a method of financing a business start-up in exchange for an equity stake in the firm.
    • Due to their risky nature, most venture capital investments are done with pooled investment vehicles.
    • These characteristics usually best fit companies in high-tech industries, which explains the venture capital boom of the late 1990s.
    • The technology firms of Silicon Valley and Menlo Park were primarily funded by venture capital.
    • Facebook is one example of a entrepreneurial idea that benefited from venture capital financing.

  • Venture Capital

    • Venture capital (abbreviated as VC) is an attractive funding option for young companies with high growth potential, most often in high technology industries.
    • Obtaining venture capital is different from raising debt or a loan from a lender.
    • Start-up: VC firms provide capital to early stage firms that need funding for marketing and product development.
    • Second-Round: Early-stage companies that are selling product but not yet turning a profit receive working capital.
    • The venture capital firm pools capital from investors and allocates it to venture efforts deemed worthy of investment.

  • Advantages and Disadvantages of VC Financing

    • Advantages: The primary advantage of venture capital financing is an ability for company expansion that would not be possible through bank loans or other methods.
    • In addition to financial capital, venture capitalists provide valuable expertise, advice and industry connections.
    • A stipulation of many VC deals includes appointing a venture capitalist as a member of the company's board.
    • Venture capital is also associated with job creation (accounting for 2% of US GDP), the knowledge economy, and used as a proxy measure of innovation within an economic sector or geography.
    • Pursuing venture capital financing may not be appropriate for most start-up companies.

  • Role of Financial Markets in Capital Allocation

    • One of the main functions of financial markets is to allocate capital, matching those who have capital to those who need it.
    • One of the main functions of financial markets is to allocate capital.
    • Capital markets especially facilitate the raising of capital while money markets facilitate the transfer of liquidity, matching those who have capital to those who need it.
    • When a company borrows from the primary capital markets, often the purpose is to invest in additional physical capital goods, which will be used to help increase its income.
    • Long-term capital can come in the form of shared capital, mortgage loans, and venture capital, among other types.

  • Introduction to Entrepreneurship

    • Entrepreneurship relates to the pursuit of risky and innovative business ventures to capture new opportunities.
    • Many high-value entrepreneurial ventures seek venture capital or angel funding (seed money) to raise capital for building the business.
    • When entrepreneurship describes activities within a firm or large organization, it is referred to as intrapreneurship and may include corporate venturing, in which large entities create spin-off organizations.

  • Weighted Average Cost of Capital

    • The WACC is the cost of capital taking into account the weights of each component of a company's capital structure.
    • The weighted average cost of capital (WACC) is the rate a company is expected to pay, on average, to its security holders.
    • The WACC is also the benchmark rate, or the minimum rate of return, a company must earn on a new venture in order to make the investment worthwhile.
    • Stated differently, the return on capital of a new project must be greater than the weighted average cost of capital.
    • Since companies raise money using any number and combination of these sources - i.e. debt, common stock, preferred stock, retained earnings - it is important to calculate the cost of capital taking into account the relative weights of each component of a company's capital structure.

  • Joint Ventures

    • Sony acquired Ericsson's share in the venture in 2012.
    • MillerCoors is a joint venture between SABMiller and Molson Coors Brewing Company.
    • A joint venture takes place when two parties come together to take on one project.
    • It has a separate liability from that of its founders, except for invested capital
    • Either or both parties no longer agree with joint venture aims

  • Joint Venture

  • Key Characteristics of Entrepreneurs

    • No other element can do so much for a man if he is willing to study them and make capital out of them.
    • Creativity: The entrepreneur must be able to inject imagination and uniqueness into a new business venture.
    • It takes skill and ingenuity to create a new venture equipped with strategies to outsmart the competition.
    • Passion: Entrepreneurs must have a desire to succeed in a business venture under their own initiative.
    • Self-discipline: The entrepreneur must be organized and regimented in pursuit of a successful business venture.

  • Summary and references

    • Buying out entire companies is also suitable as a growth strategy, but it presupposes the availability of sufficient capital, and the solution of acculturation problems.
    • Journal of Business Venturing (5): 137-150.
    • McGee, J.E., Dowling, M.J. and Megginson, W.L. (1995): Cooperative strategy and new venture performance.
    • Siegel, R., Siegel, E. and MacMillan, I. (1993): Characteristics distinguishing high growth ventures.
    • Journal of Business Venturing 8(2): 169-180.