The Financial Structure Of The Venture Capital Industry

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The venture capital industry is reaching an inflection point as the industry approaches maturity. One aspect of this maturation is a significant decrease in the number of companies undertaking initial public offerings (IPO). Scott Kupor at Andressen Horowitz noted in a June 2017 blog post noted that companies not going public means fewer jobs are being created and all the value created by these new companies is being captured by venture capitalists and company-insiders. This ultimately affects investors on both ends of the investment size spectrum, as retail investors are unable to invest in emerging technologies to help fund their retirements and sovereign wealth funds or large institutional investors might not be able to invest in…show more content…
This paper will show them how a special purpose acquisition company like Hedosophia Holdings or a Goliath fund like Vision Fund can allow them to exit a company of Unicorn scale without being forced to go through the regulatory disclosure process or public scrutiny of an IPO. This would be especially relevant for people holding equity in a private company that wouldn’t be valued correctly by the public markets, like Palantir or Uber. Additionally, this paper could help convince venture capitalists to launch similar funds. A venture capitalist who has small stakes in a number of late stage companies could launch a SPAC similar to Hedosophia Holdings parallel to their existing fund in order to buyout some of the existing investors and consolidate control. Similarly, a large, consistently oversubscribed venture capital fund like Sequoia could raise a thirty billion-plus dollar fund in order to make follow-on investments in unicorns. Similar to Vision Fund, this would give them the ability to raise and deploy much larger sums than their existing structure permits. Both investment structures would give venture capitalists new options for capitalizing on a post-IPO world. This paper will also give institutional investors the information needed to decide whether either fund-type is suitable for their investment strategy. An institutional investor who wants to invest in emerging technologies but needs the liquidity provided by public markets
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