Venture Capital Firms
Structure of venture capital firms
Venture capital is a form of private equity investment in early stage companies with the interest of generating a return through rapid growth and an eventual sale of the company. Venture capital typically comes from institutional investors and high net worth individuals and is pooled together by dedicated investment firms.
Venture capital firms are typically structured as partnerships or limited liability companies (LLC). The general partners or managing members act as the managers of the firm and will serve as investment advisors to the venture capital funds raised. Investors in venture capital funds are comprised both of high net worth individuals and institutions with available capital, such as state and private pension funds, university financial endowments, foundations, insurance companies, and pooled investment vehicles, or mutual funds.
When considering an investment, venture capitalists review the technical and business merits of the proposed company. Venture capitalists invest in a proportionately small percentage of the businesses they review. They actively work with the company's management by contributing their expertise and resources gained from helping other companies with similar growth challenges.
Venture capital firms manage the risk of venture investing by creating a portfolio of complimentary early-stage companies in a single venture fund. Many times they will co-invest with other professional venture capital firms.
Venture capital plays an important role in the development of emerging business in our economy. Over the years venture capitalists have nurtured the growth some of the country’s high profile and success companies resulting in significant job creation, economic growth and international competitiveness. Companies such as Digital Equipment Corporation, Apple, Federal Express, Compaq, Sun Microsystems, Intel, Microsoft and Genentech are famous examples of companies that received venture capital early in their development.