Venture Buyout

Understanding "Venture Buyouts"

Venture buyout is a relatively new term (apparently coined by Harvard Management Company's Peter Dolan) which describes what some consider an emerging new asset class that combines elements of venture capital and private equity buyouts. A venture buyout firm seeks to fill a void by investing in middle-stage companies that traditional buyout funds and venture capitalists pass over.

Venture buyouts can be seen as an alternative to venture capital that is invested in startup companies trying to expand because a venture buyout somewhat sidesteps the early stage of a business and takes over an existing small company. This is also an alternative to traditional large buyouts because it requires less capital and targets more entrepreneurial companies.

A venture buyout fund typically collects capital from limited partners to buyout a small later-stage company. The targets are similar to the firms that venture capitalists invest in but the venture buyout is unique because it seeks to "carve out" a startup business like a private equity buyout while maintaining the entrepreneurial aspect of venture capital. The venture buyout may buy up a smaller company and try to increase its value and to turn it around by fixing management or operations problems.

Some venture capitalists have turned to the buyout model to diversify their portfolio with a more established middle-stage company, to counter its high-risk entrepreneurial ventures. While buyouts typically hold a company for about 5-7 years, a venture buyout would try to improve the business in a much shorter time. Although the venture aspect means that venture buyouts have some risk, the funds typically use less leverage than a large buyout because the buyout targets are smaller companies. Also, venture buyouts groups--because they are relatively small compared to the large buyout firms-- will usually take on less companies in their portfolios than larger private equity buyout firms would.

Here is a video from Yahoo Finance about venture buyouts:

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Link to This Resource: Venture Buyout

http://privateequityblogger.com/2009/05/venture-buyout.html