Venture Capital (VCs)

(noun)

A funding option in which groups of speculative investors pursue small, promising entrepreneurial ventures to fund (and thus gain some ownership in).

Related Terms

Examples of Venture Capital (VCs) in the following topics:

  • 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.

  • Funding the International Business

    • Understanding the financial needs of the organization and measuring the overall weighted average cost of capital (WACC) for a venture is important in determining the appropriate level of risk and the expected level of return on that risk.
    • For small organizations, debt and equity are often accompanied by venture capital and crowd-sourcing (particularly in the startup world).
    • Venture Capital (VCs) - A popular term in the Silicon Valley and other technology hubs, VCs accumulate capital from a number of speculative investors and seek strong business opportunities still in the startup phase.
    • Winning capital from a VC can be quite lucrative, as the amount of capital invested can be high (high enough to justify international operations).
    • This interesting model allows a high number of people to invest a small amount of capital, which cumulatively may be enough to 'kickstart' a venture (international or otherwise).

  • 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.
    • If at this stage the VC firm is not satisfied with the progress from market research, the VC firm may stop their funding and the venture will have to search for other sources of funding.
    • The venture capital firm pools capital from investors and allocates it to venture efforts deemed worthy of investment.

  • 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.
    • The priority for VC firms is high financial return and a successful exit within three to seven years.Venture funding is most suitable for businesses having large up-front capital requirements that cannot be financed by debt or other alternatives.
    • 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.

  • Financing Life Cycle of the Firm

    • Methods of obtaining financial capital may be more or less suitable for a firm, depending on the current stage of its life cycle .
    • If it fits the specifications for venture capital (high growth potential, innovative product) a VC firm may agree to finance the firm.
    • It may also raise capital through equity financing.

  • IPOs

    • If the company was venture-backed, the VC firms often gain their returns from IPO yields.
    • Usually, the VC exits investments within a short time (1-3 years, normally) after the IPO is concluded either by distributing the shares to VC fund investors or selling them off on the market.
    • Enabling cheaper access to capital, which is particularly important for high growth companies
    • Prior to agreeing to provide capital, venture capitalists contract for privileges including "registration rights", which ensure their ability to sell shares into the public capital markets, thereby safeguarding their future returns.
    • The registration rights agreement between the company and the venture capitalists requires the company to register the offering of shares by venture capitalists under certain conditions.

  • Production and Cost Tables

    • The plant size is determined by capital (K) that is 5 in the example.
    • The variable cost (VC) can be calculated for each level of input use and associated with a level of output (Q).
    • Total cost (TC) is the sum of FC and VC.
    • The average cost functions can be calculated: AFC = FC/Q, AVC - VC/Q and ATC =AFC + AVC =TC/Q.

  • 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

  • Shut Down Case

    • If the revenue the firm is making is greater than the variable cost (R>VC) then the firm is covering it's variable costs and there is additional revenue to partially or entirely cover the fixed costs.
    • One the other hand, if the variable cost is greater than the revenue being made (VC>R) then the firm is not even covering production costs and it should be shutdown immediately.
    • When a firm shuts down it still retains capital assets, but cannot leave the industry or avoid paying its fixed costs.

  • 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.