![]() ![]() : In the earliest stages of developing a company, founders may contribute their own funds, crowd-source funds, or turn to angel investors, who specialize in high-risk, high-payoff deals. Experts have different ways of parsing the evolution of these young enterprises-and their corresponding sources of funding-but many divide it into the following stages: ![]() ![]() Traditionally, venture capital investors were absent from the very earliest phases of a start-up’s lifecycle, jumping in once the business got off the ground-though there are some exceptions. On the other hand, each new round of funding-while providing needed operating funds for growth-dilutes the founders’ ownership position as well as that of earlier investors who participated in previous financing rounds. VCs receive equity, an ownership share in the company, in exchange for cash, so the investment is paid back only when the start-up experiences a liquidity event-either a sale to another company or an IPO. The VCs and their limited partners typically harvest profits from their investment in one of two ways: either when the start-up is acquired by a bigger, established company or by selling shares in the company to the public via an initial public offering, or IPO.įor young companies, the lure of venture capital is that it doesn’t have to be repaid, at least in the conventional sense. ![]() VC firms such as Silver Lake Partners, Warburg Pincus, Sequoia Capital, Kleiner Perkins, and Andreessen Horowitz also frequently provide technological, financial, and management advice to the start-ups they invest in. “There is a high-risk, high-return reward to whoever is providing the capital.” “The VC uses capital to invest in potential high-growth companies,” says Titan senior investment strategist John Bottcher. Specialized partnerships, managed by venture capital firms, furnish the capital in exchange for equity or equity-like investments in the start-ups. Venture capital is an umbrella term for the investment firms that finance young, privately held companies with attractive growth prospects. Since then, venture capital has financed such technological juggernauts as Hewlett-Packard, Microsoft, Apple, Amazon, and Facebook, showcasing the industry’s ability to drive innovation and growth, and helping to make the U.S. in 1957, earning it an annualized return of more than 100% when the pioneering computer company went public in 1968. Predicated upon the notion that technologies developed during World War II could be harnessed for commercial gain, ARDC provided capital for Digital Equipment Corp. (ARDC) by three Boston-area academics and industrialists in 1946 ushered in today’s venture capital structure, raising money for the first time from pension funds, endowments, and other institutional investors. The founding of the American Research and Development Corp. Morgan and storied families like the Vanderbilts, Rockefellers, and Whitneys were laying out their own capital to finance growing railroads, steel mills, and other industrial enterprises. The roots of venture capital in the United States go back at least to the early decades of the 19th and early 20th centuries, when J.P. ![]()
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