Very often it happens that a person or group of people for a long time been working on some product or service, wonderful thought out business model, a business plan and are ready to plunge headlong into work.But where to get a sufficient initial capital?The questions can help a startup venture capital market.What it is?
What is a private equity fund?
private equity funds called intermediaries that invest in various capital investors own private companies (ie companies not listed on stock markets - not public).Funds venture capital investments - is the private capital that is invested in companies in the early stages of development.However, to distinguish between such concepts as financial investments in parts of the capital, and venture capital, in practice it is very difficult, so often between these terms equate.Yet there is a slight difference - it is that the venture capital fund investments exclusively engaged in developing the business.
regulation at the legislative level
Venture capital investments in Russia are regulated by the law on joint investment, corporate and mutual funds.Law and introduced a definition as a "fund of venture capital investment."The authors of this project to develop a legislative framework for the creation of an infrastructure fund of venture capital investments that would contribute to the development of investment projects for various companies.
Venture investment in other countries
In fact, examples of such a thing as a venture capital fund, is defined at the legislative level, quite a bit.However, the activities of such organizations in many developed countries is very pronounced and developed for decades.In the United States at the beginning of the two thousandth's venture capitalists have invested in various projects almost one hundred billion dollars.Funded companies account for nearly twenty percent of the total number of public US companies, more than thirty percent of the market value of eleven percent of all sales, thirteen percent of the profits of public corporations in the United States.As can be seen, venture investment funds play an important role in the US economy.
European market is second only to the US for development.Venture business in the EU are also quite common.In particular, ten percent of the total investment is up investments in start-up business.
What is venture capital fund?
Venture Fund is a financial investment (investment) in the organization of closed type (corporate or unit), the structural component of the assets which were not imposed significant restrictions.Depositors of such a fund may only be legal persons.Asset Management Company (AMC) is engaged directly in the assets of the fund, the company provides a reliable guardian of their storage.In particular, venture capital investments are intended not only to finance a growing business, but also for the implementation of schemes for property management.
concept of venture capital
Venture capital, contrary to popular belief, the primary issue is playing in financing a minor role.A large share of all venture capital investments aimed at the development of public funds originally financed projects.Capital plays a more important role already in the next stage, that is, at a time when innovations are commercialized.Investing in start-up projects are not "long" money - in the sense that such funds finance the company only until such time as they do not acquire sufficient creditworthiness to be connected on the stock market or sold to large corporations (strategic investors).The usual term for venture capital investment is three to five years, and in rare cases could reach eight years.
prerequisites for investment startups
Niche for venture capital investments there because the capital market has a rather complicated structure.Commercial banks are limited in financing start-ups, they will not increase interest rates to a level that would compensate for the risks of young companies.Furthermore, the loan capital - a very bad way to finance growing young companies, because of the risk of insolvency, respectively, the banks can provide credit in the amount of collateralized.But the property from the newly established company is usually not enough.Funding is from the large portfolio investors (investment and pension funds) as well as by the stock market is only available to large companies and mature.Venture capital fund just fill this gap - between the different sources of funding innovation and the banking sector.
Income venture funds - where does it come?
Investment funds, pension funds and university endowments, insurance companies - the main sources of funds, venture capital components.A small proportion of Finance need to invest in risky investments.The economy of developed countries, and its development is directly dependent on the investment process, which is associated with certain risks.The expected income from these investments is between thirty to forty per cent per annum.
When choosing a venture capital investment fund governed by some indicators, which include projects financed by this fund, past success and reputation of managers and administration.However, the influx of money gives rise to a lack of professional and experienced members, as well as increased pressure on entrepreneurs with the requirement to ensure a good result in the short term.These factors are the causes of the displacement of venture investment interest towards the financing of large and medium-sized businesses in the later stages, so it provides less risk and faster time.However, venture capital funds that finance startups, reach the highest profitability of their investments mainly thanks to sophisticated investment strategies, different ways of structuring deals and, of course, risk diversification.
What strategy using VCs?
Strategic decisions on the selection of projects for further investment are crucial.Only less than one percent of the consideration in the initial stages of projects reach direct investment.Ninety percent of all the proposals are rejected almost immediately, and the remaining ten are subjected to profound analysis.Among them are choosing the lucky ones who get the long-awaited investment.Projects that are promising and promising, are not the only targets for venture capital investors.In fact, funds of funds often invest in growing and developing region, where competition is still insufficient.According to statistics, in the early eighties, the bulk of investment was directed to the energy sector, in the mid-nineties - in the production of art, and in the two thousandth basic cash flows are in the internet business.The basic law - venture capital directed to the fast-growing region.
The myth of venture capital
A common misconception is that the venture capital business engaged in the selection of promising companies that have the potential to return to the market leaders.Often it is not.On the stage of accelerated growth sector of the economy, many companies are also beginning to develop intensively.Only in its infancy, when the competition gets tougher, winners and losers are becoming clear.However, a competent venture capitalist had already displays the body of the investment project.So it is absolutely not necessary to choose the company that will be winners in the long competition.It is enough to find a company that meets the emerging demand and growing with the market, and at the right time to bring the original investments.Often venture capital fund avoid stagnant market segments, as well as those industries that do not show potential for growth.
What is a venture capitalist?
in the classic sense of the venture capitalist is a man who not only finances the developing company, but also contributes to the creation of value of its direct and active participation.He is involved in the supervisory process, using the experience of other projects and general knowledge of the sectors of the economy, attracting consultants, auditors, bankers, ie contributes to the vigorous activity of the enterprise.
Proper structuring of transactions
options for processing transactions can be very much.However, there is a pattern: the deal should be structured in such a way to allow venture capital fund to obtain the greatest possible income if the company is successful, and the most to insure it against loss as a result of the collapse.Terms transactions always contain provisions that govern the protection fund.If the project is successful, there may be need of additional funding, and the fund will buy new shares at the initial financing.Moreover, the transaction laid and agency costs, which include the costs of overcoming the conflicts of interest and direct losses.Effective methods of structuring transactions can reduce these costs.This is usually done through the involvement of management in the company's capital, venture capitalists participating in the management and monitoring, staged financing.
best funds to invest
typical tool for such phenomena as financial investments, considered convertible preferred shares.These shares at the time of exit from the investment project shall be converted into the most common and are sold to strategic investors (large corporations) or on the stock markets.This tool provides investors with good insurance if the company fails, as in this case, the latter is obliged to refund the full amount of your investment to holders of preferred shares.
importance of diversification
Any venture capital fund wants to reduce the risk through diversification.This means that the financing attracted several funds, one of which is the master and the others are the rights of co-investors.It is rare when a fund financed by the company as a whole.Outsourcing allows the partners to diversify investments, which reduces the risks.
