Venture Capital Firms

Venture capital firms are typically private partnerships funded by pension and endowment funds, corporations, venture capitalists, and largely wealthy individuals. The venture capital firm opens a fund, pooling money from investors to expand smaller companies.

Starting a Fund

A venture capital firm will attract investors and pool their money in a fund. This fund is operated by the venture capital firm which discovers promising startup and smaller companies to invest the fund's money in. The purpose is to profit from the company's future success. Investors supply various amounts of money, amassing a substantial sum for the manager to invest.

Investing

The firm or fund has an investment profile and invests accordingly, for example a fund may focus on electronics and invest in emerging electronics companies. The hope is that the capital provided to the company will help it grow to a point that it generates high returns to the venture capital fund's investors. Profits result from expansion through an initial public offering (IPO) or another company purchasing the company. If either a public offering where the public is able to buy shares of the company or an acquisition occurs then the fund cashes out. If the venture is a success the investors receive more money than their initial investment.

Risk

Venture capital is naturally a risky business and venture capital firms suffer many failed investments, but a company that succeeds often generates huge profits that overshadow other losses for the fund.

Link to This Resource: Venture Capital Firms

http://privateequityblogger.com/2008/06/venture-capital-firms_21.html

Angel Investors and Venture Capital

Expanding startup companies hope to attract both angel investors and venture capital funds. These investors provide the capital that is necessary for getting a small company off the ground. Although angel investors and venture capital funds serve a similar function, there are important differences between the two.

The key differences between angel investors and venture capital funds:

• By Definition: Angel investors are affluent, private investors who invest in smaller companies. Although some angel investors organize into networks or groups and pool investments, angel investors generally invest alone. A venture capital fund is different because it is a substantial pooled investment, drawing on numerous wealthy investors.
• Investment Size: Angel investors typically invest under $1 million. An angel investor's investment is used to expand the company to the size that attracts larger venture capital investments, mostly above $1 million.
• Investment Focus: Angel investors focus on the earlier stages of a company, expanding the company with the angel's investment to a more marketable size toward venture capital funds. Venture capital funds do invest in the earlier stages, but venture capital funds also invest with the purpose of taking the company to the IPO stage and beyond.
• Attracting Investments: Angel investors vary in investment areas and act privately. Venture capital funds generally focus on emerging sectors like technologies, and have greater accountability for investments. This makes attracting angel investors seem easier than a venture capital fund's investment
• Expected Returns: Both angel investors and venture capital funds tend to expect high returns for their investments to counter the frequent losses. Stereotypically, angel investors expect a slower, smaller return on investments than venture capital fund.

Link to This Resource: Angel Investors and Venture Capital

http://privateequityblogger.com/2008/06/angel-investors-and-venture-capital.html