* Meaning :-
Venture capital (VC) is
financial capital provided to early-stage, high-potential, high risk, growth
start up companies. The venture capital fund makes money by owning equity in the
companies it invests in, which usually have a novel technology or business model
in high technology industries, such as biotechnology, IT, software, etc.
In addition to angel
investing and other seed funding options, venture capital is attractive for new
companies with limited operating history that are too small to raise capital in
the public markets and have not reached the point where they are able to secure
a bank loan or complete a debt offering. In exchange for the high risk that
venture capitalists assume by investing in smaller and less mature companies,
venture capitalists usually get significant control over company decisions, in
addition to a significant portion of the company's ownership (and consequently
value).
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. Every year, there are nearly 2 million businesses created in the
USA, and 600–800 get venture capital funding. According to the National Venture
Capital Association, 11% of private sector jobs come from venture backed
companies and venture backed revenue accounts for 21% of US GDP.
It is also a way in
which public and private sectors can construct an institution that
systematically creates networks for the new firms and industries, so that they
can progress. This institution helps in identifying and combining pieces of
companies, like finance, technical expertise, know-hows of marketing and
business models. Once integrated, these enterprises succeed by becoming nodes
in the search networks for designing and building products in their domain.
* History :-
A venture may be
defined as a project prospective of converted into a process with an adequate
assumed risk and investment. With few exceptions, private equity in the first
half of the 20th century was the domain of wealthy individuals and families.
The Vanderbilt’s, Whitney’s, Rockefeller s, and Warburg’s were notable investors in private companies in the first half of the century. In 1938, Laurence S. Rockefeller helped finance the creation of both Eastern Air Lines and Douglas Aircraft, and the Rockefeller family had vast holdings in a variety of companies. Eric M. Warburg founded E.M. Warburg & Co. in 1938, which would ultimately become Warburg Pincus, with investments in both leveraged buyouts and venture capital.55655353.
Before World War II,
money orders (originally known as "development capital") were
primarily the domain of wealthy individuals and families. It was not until
after World War II that what is considered today to be true private equity
investments began to emerge marked by the founding of the first two venture
capital firms in 1946: American Research and Development Corporation (ARDC) and
J.H. Whitney & Company.
ARDC was founded by Georges
Dariot, the "father of venture capitalism" (former dean of Harvard
Business School and founder of INSEAD), with Ralph Flanders and Karl Compton
(former president of MIT), to encourage private sector investments in
businesses run by soldiers who were returning from World War II. ARDC's
significance was primarily that it was the first institutional private equity
investment firm that raised capital from sources other than wealthy families
although it had several notable investment successes as well. ARDC is credited
with the first trick when its 1957 investment of $70,000 in Digital Equipment
Corporation (DEC) would be valued at over $355 million after the company's
initial public offering in 1968 (representing a return of over 1200 times on
its investment and an annualized rate of return of 101%).
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