Video Definition: What is Venture Capital?

Here is an overview of venture capital that should give you a good idea of how venture capitalists operate and the role they serve in providing financing to startups and expanding businesses. ?This video, of course, is not comprehensive in defining every aspect of the venture capital industry but it does provide a good overview to those looking to learn more about this exciting subset of private equity. ?If you?d like to watch this video but you are viewing this via RSS or e-mail, simply click here to watch.

Here is a rough transcript summary of the video:

What is venture capital?

Definition: Venture capital is the capital provided by venture capitalists (VC?s) to start-ups, small to mid-sized companies and businesses looking to expand.

Basically, venture capital firms provide the capital to growing businesses and startups that the venture capitalist believes has an upside, or high growth potential.? Startups and small businesses often require capital to expand into new markets, to develop and improve their products and services, or for any other financing need. ?Venture capital firms in this sense fill a void by investing in these firms because due to their small size and limited operating history, they cannot look to the capital markets for financing and cannot issue debt. Venture capital firms will provide the capital to these entrepreneurs and startups, but for a price.

What?s the catch?

Venture capital firms take on significant risk by investing in often unproven businesses, many of which do not provide strong returns on the investment, if any at all, and some end up going bankrupt.?? To make up for the possibility of one or even most ventures being unprofitable, venture capital firms will often secure preferred terms on their investments, most commonly by securing a portion of the equity.? Additionally, venture capital firms operate under the assumption that some of these investments will fail, but there is a chance that at least one will be a ?home run? meaning that the venture capital firm will make a huge return on the investment.

A Big Payoff

In the event that an investment pays off, it often pays off big by earning a long-term rate of return well above the returns in the general stock market.? Think of those success stories like the venture capitalists that got in on the ground floor of Facebook pre-IPO or Google; those investors were handsomely rewarded for their faith in a new technology becoming a strong business.

There are three main reasons for venture capital firms to demand a big reward for an investment:

1. No liquidity:? Unlike an investor in a publicly-traded company, venture capital funds have little to no way to trade their interest in a company with another investor.? Although there is a possibility that you could trade with other VC?s, for the most part a venture capitalist is stuck with a lack of liquidity and that deserves a reward for taking on that type of investment.
2. Little diversification: much of the venture capital activity in the world takes place in the technology, biotechnology and telecommunications sectors.? While there are venture capital funds that invest in any number of other sectors and industries, much of the activity is concentrated in technology.? While this has been great in helping produce big innovative successes like Google or Twitter, venture capital firms take on a lot of risk in such low diversification.
3. Lastly, the most obvious reason for demanding a sizable payout and preferred terms is that the venture capital firms take on significant risk. ?Even more than other private equity investments, venture capitalists are operating under the mindset that the investment may very well turn out to be a flop but nevertheless they make the investment because they hope to make up for possible losses with even bigger gains.? Limited partners in the funds also accept this risk, but expect the General Partner to mitigate it as much as possible.

In conclusion, venture capital is a source of funding for startups, entrepreneurs and expanding businesses.? Venture capital is high risk-high reward and while many venture capitalists have struck out on investments, there are a lucky, smart few who have been a big part in developing the next big company.

?

1. Private Equity Tracker Tool
2. Private Equity Career Guide
3. Private Equity Training
4. Private Equity Directory ? List of Private Equity Firms

Tags: venture capital primer, venture capital introduction, venture capital overview, venture capital explanation, venture capital definition, venture capital definition video, venture capital definition primer, venture capital tutorial, free venture capital video, free venture capital training video, venture capitalist definition

Tagged as: free venture capital training video, free venture capital video, venture capital definition, venture capital definition primer, venture capital definition video, venture capital explanation, venture capital introduction, venture capital overview, venture capital primer, venture capital tutorial, venture capitalist definition, what is venture capital

denver weather planned parenthood what time does the superbowl start kobayashi roseanne barr margaret sanger paul george