A Sample List of Venture Capital Companies
Venture Capital is one of the most common forms of finance for fast-growing
companies and is typically used to facilitate the initial formation and
start-up, development and expansion – both organically and through
acquisition and for the purchase of companies in management buy-in and
management buy-out scenarios.
Most growing businesses need additional capital and there are many sources
of venture capital (also known as private equity) such as VC funds,
corporate venture providers and individual angel investors. (see: Venture
These are not the only sources of business finance however, and it is
usually prudent to explore all options of financing the business, including
bank finance through overdraft, invoice discounting & factoring, as well as
specialised financing for the purchase of assets such as computer equipment,
company vehicles and plant and machinery (see: Leasing Services).
Venture capital investors acquire shares in private companies in exchange
for providing the cash investment required. Because of the lack of liquidity
in private companies i.e. it is often a slow and difficult process to sell
them, the risks associated with venture capital investing are high.
Increasing the risk is the fact that venture capital investments do not
normally carry an interest charge. Instead, the investor looks for a high
rate of return over the medium term (typically three to five years) through
capital appreciation, which is realised when the company is either sold or
is listed on a Stock Exchange.
The failure rate of private companies is also high, which means the venture
capitalist must look to invest in opportunities that have the prospect of
growing very quickly and significantly increasing their value.
Typically, a VC will acquire a minority stake in an investee company will
not normally seek day-to-day control. The exception to this rule tends to be
in highly leveraged situations such as management buy-outs or management
buy-ins where the proportion of funds provided by management is often small
relative to the acquisition cost.
In order to help guide the companies they invest in, most venture
capitalists will require a seat on the board. This serves the dual purpose
of enabling the company to benefit from the VC’s experience and contacts
while enabling the VC to monitor their investment and offer assistance if
and when required to ensure the company reaches its full potential. Board
representation and the accompanying management support provided is often
sited as the most important aspect of obtaining VC funding.
Not all VC’s will invest at the same stage in a company’s life cycle;
typically referred to as seed/start-up, early stage, development/expansion
and pre-IPO. These are discussed in more detail in the section titled
Venture Capital Overview.
Size of Investment
Traditionally, the amount of money invested in a company was closely related
to the maturity of the business, its size, market share, level of
profitability, perceived risks and opportunities together with the
anticipated time-frame to achieve a successful exit. Over recent years, this
has changed as a result of factors such as time to market with a
groundbreaking product, the globalisation of many industries and markets and
the infrastructure costs associated with many businesses. The phenomenon of
“Land Grab” i.e. being the first in a market sector to obtain the dominant
position as seen with Amazon and Ebay, often adds to the need for
substantial funding earlier in a company’s life cycle than was previously
Some of the industries most actively invested in are IT Services, Internet,
Telecoms, wireless communications, computer software, Internet, business
services and communications, distribution and retailing. There are also
specialist funds investing in sectors such as biotechnology and healthcare.
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