global venture capital

There are many young fledgling companies who do not have enough capital to start the company, nor can they get loans from banks or other lending institutions. This is because they have no assets that they can offer as collateral. With no security to offer, getting a lending institution to back and invest in them is difficult. But all is not lost.  Professionals fund those companies that have the capacity for fast growth and have the potential of tremendously increasing their value on a global scale . This money is called as Global venture capital. 

Formerly whenever money was invested in a company, many factors were considered---the kind of market available for the product, the economic viability, and its place in the stock market. Today however globalization is a factor to contend with. The investors want to be the 1st in the market to be associated with something that is really “hot’ and are prepared to take the “high risk” factor in their stride because they know that it is likely to produce tremendously “ high returns”. In return for the capital provided by the investor, the venture capitalist acquires equity shares in the company and actively participates in its functioning. The kind of control exercised is not a day-to-day control, but a value added one – which means he offers his expertise to ensure that the company reaches its full potential as soon as possible.

The global venture capital is given to companies at various stages. If the capital is provided to support only the development of a particular product then it is called as “seed financing”. There are companies who have started their business but have not commenced marketing. Capital provided to such companies is called as “startup financing” because the capital invested helps product development and aids marketing. Other companies who have exhausted their initial capital and require more funds for the purchase of supplies or for manufacturing are also funded by venture capital and this is called as “first stage financing.” Companies that have crossed the initial hurdles and are contemplating growth expansion and expecting to go public are also funded by venture capital. Such financing is called “Expansion financing”. If however the company needs to acquire other companies and lacks funds, venture capital provides the necessary finance. Such financing is appropriately called “ acquisition financing”. So, global venture capital is either used in “early stage financing” or” later stage financing”.

In the 1990’s, venture capital essentially funded companies associated with computer technology and medical and health care companies, but when the Internet specific businesses appeared on the scene, the focus was changed and venture capital funded such companies. The scenario in The United States is a typical example of companies having been funded by venture capital.  Companies like Apple, Compaq, Sun Microsystems, Intel and Microsoft received venture capital in the early stages of development. Venture capitalists scrutinize several projects, but only invest in those that they consider worth investing in. However there is no guarantee that all the projects they invest in will click, but high returns on a couple of investments will offset losses on the others.

Related resources : global venture capital firms

Category ~ Economy and Trade : venture capital firms  venture companies  angel investors  Venture capitalists 

Doing business in India     foreign exchange   Economics help

 Home