The concept of a venture fund A venture fund is an investment fund that finances innovative start-ups. This type of activity is associated with high risk: it is rather dangerous to invest in an emerging...
The concept of a venture fund
A venture fund is an investment fund that finances innovative start-ups. This type of activity is associated with high risk: it is rather dangerous to invest in an emerging technology company, but if the project is successful the investor will literally bathe in money. This is the peculiarity of this field.
In order to protect themselves, venture capitalists do not invest all their money in any one start-up, but instead form entire investment portfolios in which there are securities of a wide variety of companies. Thus, even if a part of their enterprise goes bankrupt, the profit from two or three successful ones will pay back all of the losses with interest.
Venture capital funds differ from other investment companies by the sectors that they finance. For example, they can be focused on:
- «Green» energy technologies;
- Innovations in the field of health;
- Information technologies in the field of corporate software, data analytics, e-commerce, mobile platforms, etc.
Fund participants and the principle of venture operation
Fund investors are, as a rule, private individuals, companies, financial institutions, and pension funds. A part of the funds is contributed by the venture company that created the fund and manages it. It should be noted that all funds are collected before the investment starts and all decisions are made by fund managers. For their work they receive a certain percentage of the income received.
Initially, the fund invests in the companies that make up its portfolio (usually about 10 firms), and then develops these start-ups for several years, participating in their operational work. At the end of the cycle the shares in the companies are sold to other investors and the money received is distributed among the fund’s operators.
Although the expected income varies depending on a set of variables, venture funds usually aim at a rate of return of about 30 percent. Some may not be impressed with these figures, but in fact this is a good result and achieving such a return can be very difficult.
Thus, venture investments are a rather interesting type of business. Most of all it suits people who believe that risk is a noble business.
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