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Venture Capital: Private Equity Financing for High-Growth Companies

Venture capital is a private equity financing form provided by venture capital firms or funds to startups, early-stage, and emerging companies.
Venture capitalists invest in these companies in exchange for equity, or an ownership stake, and take on the risk of financing risky start-ups.
Venture capital investments usually occur after an initial "seed funding" round, and the first round of institutional venture capital to fund growth is called the Series A round.
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 early-stage companies, venture capitalists usually get significant control over company decisions, in addition to a significant portion of the companies' ownership.
Venture capitalists also often provide strategic advice to the company's executives on its business model and marketing strategies.
Venture capital is also a way in which the private and public sectors can construct an institution that systematically creates business networks for the new firms and industries so that they can progress and develop.
Before World War II, venture capital was primarily the domain of wealthy individuals and families, but only after 1945 did "true" venture capital investment firms begin to emerge.
The advent of the World Wide Web in the early 1990s reinvigorated venture capital as investors saw companies with huge potential being formed, leading to a major proliferation of venture capital investment firms.
The bursting of the Dot-com bubble in 2000 caused many venture capital firms to fail and financial results in the sector to decline.
The Nasdaq crash and technology slump that started in March 2000 shook virtually the entire venture capital industry as valuations for startup technology companies collapsed.
Venture capital funds, which were responsible for much of the fundraising volume in 2000, raised only $25.1 billion in 2006, a 2% decline from 2005 and a significant decline from its peak, but the industry continued to show phenomenal growth and in 2020 hit $80 billion in fresh capital.Venture Capital: An Overview
Venture capital is a type of private equity financing provided by investors to startup companies and small businesses with high growth potential.
Venture capitalists invest in exchange for an equity stake in the business and earn a return based on the growth and profitability of the company.
Venture capitalists are highly selective in their investments, typically investing in companies with an excellent management team, a large potential market, and high growth potential.
Venture capitalists carry out detailed due diligence prior to investment and assist companies in their development, aiming for a successful exit within the required time frame.
Venture capitalists typically invest at four stages of a company's development: seed, startup, growth, and mezzanine.
Venture capital firms are structured as partnerships or limited liability companies, with general partners serving as managers and investment advisors to the venture capital funds raised.
Venture capitalists are compensated through a combination of management fees and carried interest.
Alternatives to venture capital include seed funding from angel investors, revenue-based financing, startup studios, and equity crowdfunding.
Venture capital accounts for 11% of private sector jobs and 21% of US GDP, but only about 600-800 businesses receive venture capital funding each year.
There are gender disparities in venture capital funding, with female-founded companies receiving only 2.8% of capital investment in 2020.
The majority of venture capitalists are based in the United States, but non-US venture investment is growing.Overview of Venture Capital Industry Across the Globe
Venture capital plays a role in facilitating access to finance for small and medium enterprises in developing regions.
In 2008, the United States dominated VC funding with $28.8 billion invested in over 2550 deals, compared to $13.4 billion invested elsewhere.
Venture capital investing reached $209.4 billion in the United States in 2022, the second highest investment year in history.
Australia and New Zealand have more than one hundred active VC funds, syndicates, or angel investors making VC-style investments.
The Bulgarian venture capital industry has been growing rapidly with 18 VC and growth equity firms on the local market, with the total funding available for technology startups exceeding €200M.
The venture capital industry in Mexico is a fast-growing sector in the country that, with the support of institutions and private funds, is estimated to reach US$100 billion invested by 2018.
High-tech entrepreneurship and venture capital have flourished in Israel, which has about 70 active venture capital funds.
Canadian technology companies have attracted interest from the global venture capital community partially as a result of generous tax incentive through the Scientific Research and Experimental Development (SR&ED) investment tax credit program.
The Nordic region has raised more than €3 billion by VC funds over the last five years, with known Nordic early-stage venture capital funds including NorthZone, Maki.vc, and ByFounders.
In India, venture capital consists of investing in equity, quasi-equity, or conditional loans in order to promote unlisted, high-risk, or high-tech firms driven by technically or professionally qualified entrepreneurs.
The Middle East and North Africa (MENA) venture capital industry is an early stage of development but growing, with 238 startup investment deals totaling $471 million in investments in the first half of 2019.
The Southern African venture capital industry is developing, with the South African Government and Revenue Service using tax-efficient vehicles to propel economic growth and job creation through venture capital.Overview of Venture Capital in Sub-Saharan Africa
Venture capital in Sub-Saharan Africa is a small community, with not many venture capital funds in operation; however, the number of venture funds is increasing steadily with new incentives coming in from the government.
The majority of venture capital in Sub-Saharan Africa is centered on South Africa and Kenya.
Companies are more likely to receive funding if they can demonstrate initial sales or traction and the potential for significant growth.
Entrepreneurship is a key to growth, and governments will need to ensure business-friendly regulatory environments to help foster innovation.
In 2019, venture capital startup funding grew to $1.3 billion, increasing rapidly, but the causes are yet unclear, and education is a factor.
Venture capitalists treat information confidentially, but entrepreneurs must remain vigilant about sharing information with venture capitalists that are investors in their competitors.
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.
Government needs to adjust its regulation around intellectual property, exchange control, and other legislation to ensure that venture capital succeeds.
There are several strict guidelines regulating those that deal in venture capital, and they are not allowed to advertise or solicit business in any form, as per the U.S. Securities and Exchange Commission guidelines.
Venture capital is not just an investment of money; it is also an investment in a person and an idea.
Venture capital can be a risky investment, and investors are looking for a high return on investment.
Venture capital is one of the most important sources of funding for startups and small businesses.