Venture capital is an investment in the most risky assets. These assets can be new high-potential companies and technologies that cannot be considered as mature, but are of great interest to investors. It is assumed that such assets can later gain great popularity, solve a global problem, and thus bring additional income to the owner.
The origins of venture capital are dating back to the 60s of the twentieth century, when the main assets were biotechnology. By the 80s, the United States had become a leader in venture investments. Next series of investments was made into such attractive assets as mobile phones, computers, and their software.
Venture capitalists seek to increase their investments on average 7-10 times over a period of about 5-7 years. Apparently, investors are only interested in the return, when the questions of management and development of the company are the concern of the managers. The investor can participate in the company operation and development, but his ultimate objective is money.
Usually the objects of interest for venture capital are early-stage, growth start-up companies whose shares had not been yet subjected to IPO or other realization event. All such investments are non-illiquid. The costs start to pay off only after an IPO or trade sale of the company. Profitability may reach more than 1000%. No other business, even money laundering, can provide such a profit, but then the risks are very high. That is why it is a venture.
However, venture investors seek to minimize this ultimately high risk. This leads to a staged financing activity. The next installment is allocated depending on the success of the preceding stage. In addition, investors stipulate to replace the preferred shares by simple ones in the case of critical financial situation. Through these measures, investors control the company in order to avoid insolvency.
When the situation is favorable, a venture investor holds the company until it become attractive to potential buyers and investors. In this scenario, he has two ways to profit: an IPO or trade sale of the company.
It should be clear for students who write their research paper on the subject that venture capital financing is very risky. But then again, there are no risk-free assets. Even the most reliable banks and companies can be subjected to collapse. On the other hand, venture capital stimulates the development of new technology, which later can be sold with a great interest. Thus, students must emphasize that this type of capital is necessary for economic development, which ultimately contributes to the growth of consumption in particular in times of crisis.
College students should always remember the standards, according to which they have to write their research proposals. Free sample research proposals on different venture capital topics can serve you as an example of a scientific text written by the standards. They can save you lots of efforts and make you task much easier.
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