Who is venture capitalists

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Windfall Gains Windfall gain is an unexpected gain in income which could be due to winning a lottery, unforeseen inheritance or shortage of supply. Related Definitions. Browse Companies:. Mail this Definition. My Saved Definitions Sign in Sign up. Find this comment offensive? Venture capital VC is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential.

Venture capital generally comes from well-off investors, investment banks, and any other financial institutions. However, it does not always take a monetary form; it can also be provided in the form of technical or managerial expertise. Venture capital is typically allocated to small companies with exceptional growth potential, or to companies that have grown quickly and appear poised to continue to expand.

Though it can be risky for investors who put up funds, the potential for above-average returns is an attractive payoff. For new companies or ventures that have a limited operating history under two years , venture capital is increasingly becoming a popular—even essential—source for raising money, especially if they lack access to capital markets , bank loans, or other debt instruments. The main downside is that the investors usually get equity in the company, and, thus, a say in company decisions.

In a venture capital deal, large ownership chunks of a company are created and sold to a few investors through independent limited partnerships that are established by venture capital firms.

Sometimes these partnerships consist of a pool of several similar enterprises. One important difference between venture capital and other private equity deals, however, is that venture capital tends to focus on emerging companies seeking substantial funds for the first time, while private equity tends to fund larger, more established companies that are seeking an equity infusion or a chance for company founders to transfer some of their ownership stakes.

Venture capital is a subset of private equity PE. While the roots of PE can be traced back to the 19th century, venture capital only developed as an industry after the Second World War.

ARDC's first investment was in a company that had ambitions to use x-ray technology for cancer treatment. The financial crisis was a hit to the venture capital industry because institutional investors, who had become an important source of funds, tightened their purse strings.

The emergence of unicorns, or startups that are valued at more than a billion dollars, has attracted a diverse set of players to the industry. Sovereign funds and notable private equity firms have joined the hordes of investors seeking return multiples in a low-interest-rate environment and participated in large ticket deals. Their entry has resulted in changes to the venture capital ecosystem. Although it was mainly funded by banks located in the Northeast, venture capital became concentrated on the West Coast after the growth of the tech ecosystem.

Fairchild Semiconductor, which was started by eight engineers the "traitorous eight" from William Shockley's Semiconductor Laboratory, is generally considered the first technology company to receive VC funding. During the second quarter of , West Coast companies accounted for A series of regulatory innovations further helped popularize venture capital as a funding avenue. The dot-com boom also brought the industry into sharp focus as venture capitalists chased quick returns from highly-valued Internet companies.

But the promised returns did not materialize as several publicly-listed Internet companies with high valuations crashed and burned their way to bankruptcy. For small businesses, or for up-and-coming businesses in emerging industries, venture capital is generally provided by high net worth individuals HNWIs —also often known as " angel investors "—and venture capital firms.

The National Venture Capital Association NVCA is an organization composed of hundreds of venture capital firms that offer to fund innovative enterprises. Angel investors are typically a diverse group of individuals who have amassed their wealth through a variety of sources.

However, they tend to be entrepreneurs themselves, or executives recently retired from the business empires they've built. Self-made investors providing venture capital typically share several key characteristics.

The majority look to invest in companies that are well-managed, have a fully-developed business plan , and are poised for substantial growth. These investors are also likely to offer to fund ventures that are involved in the same or similar industries or business sectors with which they are familiar. If they haven't actually worked in that field, they might have had academic training in it. Another common occurrence among angel investors is co-investing , in which one angel investor funds a venture alongside a trusted friend or associate, often another angel investor.

The first step for any business looking for venture capital is to submit a business plan, either to a venture capital firm or to an angel investor. If interested in the proposal, the firm or the investor must then perform due diligence , which includes a thorough investigation of the company's business model , products, management, and operating history, among other things.

Since venture capital tends to invest larger dollar amounts in fewer companies, this background research is very important. Many venture capital professionals have had prior investment experience, often as equity research analysts ; others have a Master in Business Administration MBA degree.

Venture capital professionals also tend to concentrate on a particular industry. A venture capitalist that specializes in healthcare, for example, may have had prior experience as a healthcare industry analyst.

Once due diligence has been completed, the firm or the investor will pledge an investment of capital in exchange for equity in the company.

These funds may be provided all at once, but more typically the capital is provided in rounds. The firm or investor then takes an active role in the funded company, advising and monitoring its progress before releasing additional funds. The investor exits the company after a period of time, typically four to six years after the initial investment, by initiating a merger , acquisition, or initial public offering IPO.

Like most professionals in the financial industry, the venture capitalist tends to start his or her day with a copy of The Wall Street Journal , the Financial Times , and other respected business publications. Venture capitalists that specialize in an industry tend to also subscribe to the trade journals and papers that are specific to that industry.

All of this information is often digested each day along with breakfast. For the venture capital professional, most of the rest of the day is filled with meetings. At an early morning meeting, for example, there may be a firm-wide discussion of potential portfolio investments. The due diligence team will present the pros and cons of investing in the company. An "around the table" vote may be scheduled for the next day as to whether or not to add the company to the portfolio. An afternoon meeting may be held with a current portfolio company.

These visits are maintained on a regular basis in order to determine how smoothly the company is running and whether the investment made by the venture capital firm is being utilized wisely. Venture capital is a form of financing where capital is invested into a company, usually a startup or small business, in exchange for equity in the company.

It is also a major subset of a much larger, complex part of the financial landscape known as the private markets. What is a venture capital firm? Venture capital firms are a type of investment firm that fund and mentor startups or other young, often tech-focused companies. Similar to private equity PE firms , VC firms use capital raised from limited partners to invest in promising private companies. A firm's array of companies is called its portfolio, and the businesses themselves, portfolio companies.

Examples of venture capital firms include: Sequoia Capital Headquartered in Menlo Park, CA, Sequoia Capital is a venture capital firm that invests in IT, mobile, internet, energy, media, retail sectors and more.

The firm is an active investor in ghost kitchens , an emerging space tracked by PitchBook , and it has invested in companies Uber , Bird , DoorDash and 23andMe. DN Capital London-based DN Capital in an early-stage VC firm that invests in software, fintech, mobile app, digital media, e-commerce companies and others.

Read case study. Interested in learning more about the private markets?