Landscape Of The Venture Capital Industry

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1. Introduction 1.1. Landscape of the venture capital industry Venture capital (VC) refers to financial intermediary between institutional investors and private companies, often to finance new ventures or growth of private companies. Venture capital is a subset of the larger private equity industry, which refers to equity investments in privately-held enterprises. VCs are different from angel investors, who are often erroneously considered the same as VC, in that VCs rely on raising a pool of capital from limited partners (LP), and invest on their behalf as general partners (GP), via a limited partnership that is the actual fund (VC firms often manage several funds). The limited partnership model define certain characteristics of VC…show more content…
Another important characteristic that separates VC from Angel investors and CVC is the fundraising process. VC firms need to raise new funds periodically, which increases the pressure to have positive periodic returns and high-profile investments to assist with future fundraising rounds. The VC industry itself is divided on the basis of the different stages of investment. Angel investing refers to individual investors, who are often the first group of investors in a new enterprise, who provide capital and mentorship. Angel investors invest in companies before VC firms, who invest in the next round of fundraising, what is often dubbed as Seed Stage, which accounts for about 2% of total VC investments (NVCA). At the Seed Stage, the portfolio company has just been founded, and its product is still in development. (NVCA) Clearly, at such an early stage, it is nearly impossible to make any meaningful financial projections, since the company lacks a product to offer. The next stage in VC financing is dubbed as “Series A”. From an operational standpoint, there are very few differences between Series A and Seed Stage, since at time of a Series A fundraising, the company’s product may still be in development, (NVCA) or has just been finished to a viable level to allow for a pilot product launch, testing the market and commercialization potential of the company. Similarly,
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