Venture capital — A Video Map Guide

Origins of modern venture capital .hatnotediv.hatnote.hatnote i.hatnote+link+.hatnote@media printHistory of venture capital Before World War II (1939–1945) venture capital was primarily the domain of wealthy individuals and families. J.P. Morgan, the Wallenbergs, the Vanderbilts, the Whitneys, the Rockefellers, and the Warburgs were notable investors in private companies. In 1938, Laurance 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. The Wallenberg family started Investor AB in 1916 in Sweden and were early investors in several Swedish companies such as ABB, Atlas Copco, and Ericsson in the first half of the 20th century. Only after 1945 did "true" venture capital investment firms begin to emerge, notably with the founding of American Research and Development Corporation (ARDC) and J.H. Whitney & Company in 1946. Georges Doriot, the "father of venture capitalism", along with Ralph Flanders and Karl Compton (former president of MIT) founded ARDC in 1946 to encourage private-sector investment in businesses run by soldiers returning from World War II. ARDC became the first institutional private-equity investment firm to raise capital from sources other than wealthy families. Unlike most present-day venture capital firms, ARDC was a publicly traded company. ARDC's most successful investment was its 1957 funding of Digital Equipment Corporation (DEC), which would later be valued at m

Venture capital financing Obtaining venture capital is substantially different from raising debt or a loan. Lenders have a legal right to interest on a loan and repayment of the capital irrespective of the success or failure of a business. Venture capital is invested in exchange for an equity stake in the business. The return of the venture capitalist as a shareholder depends on the growth and profitability of the business. This return is generally earned when the venture capitalist "exits" by selling its shareholdings when the business is sold to another owner. Venture capitalists are typically very selective in deciding what to invest in, with a Stanford survey of venture capitalists revealing that 100 companies were considered for every company receiving financing. Ventures receiving financing must demonstrate an excellent management team, a large potential market, and most importantly high growth potential, as only such opportunities are likely capable of providing financial returns and a successful exit within the required time frame (typically 8–12 years) that venture capitalists expect. Because investments are illiquid and require the extended time frame to harvest, venture capitalists are expected to carry out detailed due diligence prior to investment. Venture capitalists also are expected to nurture the companies in which they invest, in order to increase the likelihood of reaching an IPO stage when valuations are favourable. Venture capitalists typically assist at four stages in the company's development: Idea generation; Start-up; Ramp-up; and Exit Because there are no public exchanges listing their securities, private companies meet venture capital firms and other private-equity investors in several ways, including warm referrals from the investors' trusted sources and other business contacts; investor conferences and symposia; and summits where companies pitch

Venture capitalist A venture capitalist, or sometimes simply called a capitalist, is a person who makes capital investments in companies in exchange for an equity stake. The venture capitalist is often expected to bring managerial and technical expertise, as well as capital, to their investments. A venture capital fund refers to a pooled investment vehicle (in the United States, often an LP or LLC) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans. These funds are typically managed by a venture capital firm, which often employs individuals with technology backgrounds (scientists, researchers), business training and/or deep industry experience. A core skill within VCs is the ability to identify novel or disruptive technologies that have the potential to generate high commercial returns at an early stage. By definition, VCs also take a role in managing entrepreneurial companies at an early stage, thus adding skills as well as capital, thereby differentiating VC from buy-out private equity, which typically invest in companies with proven revenue, and thereby potentially realizing much higher rates of returns. Inherent in realizing abnormally high rates of returns is the risk of losing all of one's investment in a given startup company. As a consequence, most venture capital investments are done in a pool format, where several investors combine their investments into one large fund that invests in many different startup companies. By investing in the pool format, the investors are spreading out their risk to many different investments instead of taking the chance of putting all of their money in one start up firm. Structure Diagram of the structure of a generic venture capital fund Venture capital firms are typically structured as partnerships, the general partners of which serve as the managers of the fi

Every year, there are nearly 2 million businesses created in the US, but only 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.

In 2020, female-founded companies raised 2.8% of capital investment from venture capital, the highest amount recorded. Babson College's Diana Report found that the number of women partners in VC firms decreased from 10% in 1999 to 6% in 2014. The report also found that 97% of VC-funded businesses had male chief executives, and that businesses with all-male teams were more than four times as likely to receive VC funding compared to teams with at least one woman. Currently, about 3% of all venture capital is going to woman-led companies. More than 75% of VC firms in the US did not have any female venture capitalists at the time they were surveyed. It was found that a greater fraction of VC firms had never had a woman represent them on the board of one of their portfolio companies. For comparison, a UC Davis study focusing on large public companies in California found 49.5% with at least one female board seat.

Venture capital, as an industry, originated in the United States, and American firms have traditionally been the largest participants in venture deals with the bulk of venture capital being deployed in American companies. However, increasingly, non-US venture investment is growing, and the number and size of non-US venture capitalists have been expanding. Venture capital has been used as a tool for economic development in a variety of developing regions. In many of these regions, with less developed financial sectors, venture capital plays a role in facilitating access to finance for small and medium enterprises (SMEs), which in most cases would not qualify for receiving bank loans. In the year of 2008, while VC funding were still majorly dominated by U.S. money ($28.8 billion invested in over 2550 deals in 2008), compared to international fund investments ($13.4 billion invested elsewhere), there has been an average 5% growth in the venture capital deals outside the US, mainly in China and Europe. Geographical differences can be significant. For instance, in the UK, 4% of British investment goes to venture capital, compared to about 33% in the U.S. VC funding has been shown to be positively related to a country's individualistic culture. According to economist Jeffrey Funk, however, more than 90% of US startups valued over $1 billion lost money between 2019–2020 and return on investment from VC barely exceed return from public stock markets over the last 25 years. United States American dynamism Quarterly U.S. Venture Capital Investments, 1995–2017 Venture capital investment by area Venture capital by state, 2016 In the United States, venture capital investing reached $209.4 billion in 2022, the second-highest investment year in history. Venture capitalists invested some

Unlike public companies, information regarding an entrepreneur's business is typically confidential and proprietary. As part of the due diligence process, most venture capitalists will require significant detail with respect to a company's business plan. Entrepreneurs must remain vigilant about sharing information with venture capitalists that are investors in their competitors. Most venture capitalists treat information confidentially, but as a matter of business practice, they do not typically enter into Non Disclosure Agreements because of the potential liability issues those agreements entail. Entrepreneurs are typically well advised to protect truly proprietary intellectual property. Startups commonly use a data room to securely share this information with potential investors during the due diligence process. Limited partners of venture capital firms typically have access only to limited amounts of information with respect to the individual portfolio companies in which they are invested and are typically bound by confidentiality provisions in the fund's limited partnership agreement.

There are several strict guidelines regulating those that deal in venture capital. Namely, they are not allowed to advertise or solicit business in any form as per the U.S. Securities and Exchange Commission guidelines.

This section needs additional citations for verification. Please help improve this article by adding citations to reliable sources in this section. Unsourced material may be challenged and removed. (January 2021) (Learn how and when to remove this message) In books Mark Coggins' novel Vulture Capital (2002) features a venture capitalist protagonist who investigates the disappearance of the chief scientist in a biotech firm in which he has invested. Coggins also worked in the industry and was co-founder of a dot-com startup. Drawing on his experience as reporter covering technology for The New York Times, Matt Richtel produced the novel Hooked (2007), in which the actions of the main character's deceased girlfriend, a Silicon Valley venture capitalist, play a key role in the plot. Great, detailed work on VC method of funding. In comics In the Dilbert comic strip, a character named "Vijay, the World's Most Desperate Venture Capitalist" frequently makes appearances, offering bags of cash to anyone with even a hint of potential. In one strip, he offers two small children with good math grades money based on the fact that if they marry and produce an engineer baby he can invest in the infant's first idea. The children respond that they are already looking for mezzanine funding. Robert von Goeben and Kathryn Siegler produced a comic strip called The VC between 1997 and 2000 that parodied the industry, often by showing humorous exchanges between venture capitalists and entrepreneurs. Von Goeben was a partner in Redleaf Venture Management when he began writing the strip. In film In Wedding Crashers (2005), Jeremy Grey (Vince Vaughn) and John Beckwith (Owen Wilson) are bachelors who create appearances to play at different weddings of complete strangers, and a large part of the movie follows them posing as venture capitalists from New Hampshi