Venture Capital Meaning and History
Those who work in business and economy field are familiar with venture capital (VC). The term that relates to financing form is quite popular among small firms and early stages. What is actually VC about? Small and early stage firms do not have sufficient fund to sustain the business and support their growth. Due to this condition, they need help from bigger company. To make long story short, VC refers to financing form in which huge firm provides funds for the small firms. However, not all small firms are eligible to receive VC. Only ones with high growth are qualified.
History of Venture Capital
When did VC started? VC as a type of private equity was started back then in 20th century. At that time, venture capital was performed by wealthy families or individuals such as The Vanderbilts, Wallenbergs, Rockefellers and Whitneys. They were known as notable investors in several private companies during 20th century. Each investor was noted to invest in several companies as follows:
The Rockefellers From The Rockefellers family, Laurance S. Rockefeller was noted to help the creation of Douglas Aircraft and Eastern Air Lines financially. Not only both companies, has the family also invested in some other companies.
The Wallenbergs Another wealthy family that also invested in the same era was The Wallenbergs who started investor AB in Sweden in 1916. They were also known as early investors in some Swedish companies including Ericsson, Atlas Copco, and some others during 20th century. From two families mention, it can be inferred that financing smaller firms are already practices since many years ago. Since then, VC grows rapidly and is still practiced until today. When it comes to the modern and professional VC practice, it was started in 1950s and continued to 1970 when CV firms focused the investment on expanding companies. For your information, VC is different from loan or raising debt. While typical lender has right to interest on the loan, VC invested in exchange for equity stake. The return depends on the growth of the business, making it more risky for the investors. Starting from this fact, venture capitalists must be selective in choosing the firms to invest in. The company should have high growth potential and demonstrate excellent management. The small firm should also have large potential market. This is the only chance for venture capitalist to gain profit from practicing VC.
In conclusion, VC as a type of private equity has been started since decades ago. Even though the practice undergoes several modifications, the concept remains the same. Considering venture capitalists typically put not only investment but also trust to the small firms, it makes sense to know they are quite selective in choosing the invested business. To make everything goes well, venture capitalists usually nurture the companies they invest in. The objection is none other than making the small firms grow bigger with all potential that they have. As results, the investor companies will be able to gain profit by practicing venture capital.