Academic Master

BUSINESS, Business and Finance

Venture Fund Analysis

Executive Summary

The reason for their excess funds is due to the fact that they attract quite a lot of interest among the stakeholders regarding their earning potential and long term viability. If they lose this ability to finance on their own,they would not be able to make sure that they can sustain the excess funding or sources of funding that they have acquired in the earlier time period.The reaction of the new investors towards the startup is also going to vary from one situation to the another. For instance, there are small investors whose risk cap is on the lower side. On the other hand, the venture capitalists are the some of the people who have contributed towards the early stage of setting up the whole business during its initiation.

Introduction

A venture capital fund is a collective investment institution dedicated to investing in companies, preferably in companies of recent creation (startup) and great potential. Like investment funds, a venture capital fund has the corporate purpose of investing in companies and institutions, with the characteristic that they tend to invest in young companies and those in which they are in a difficult situation. , hence the adjective of risk (Juan García-Teruel and Solano, 2017, p.177)   in its denomination. Venture capital funds benefit from this type of operations by becoming owners of the assets of the companies in which they invest, which are usually companies that have a new technology or a novel business model within a technological sector, such as biotechnology, ICT , software , etc

Types Of Venture Capital Funds

According to the above, we can distinguish two types:

  • Venture capital: dedicated to the investment, promotion and growth of companies in early stages.
  • Capital investment or ” private equity: dedicated to the mere investment in prestigious and profitable companies in order to obtain the greatest benefits, through dividends or sales gains, in the future.

Through the incorporation of this type of instrumental companies, it is possible to protect a process of development and expansion of a company and boost the market, which is endorsed by various investors (Juan García-Teruel and Solano, 2017, p.177). These are also often called ” business angels ” for the opportunity to finance and realize ideas and projects (Juan García-Teruel and Solano, 2017, p.177).

When Do They Arise?

Venture capital funds emerged at the beginning of the 1990s as a way of investing in innovative companies, with a technological base and great development potential , which is why technological companies and young entrepreneurs have been the main objective. However, this is not always the case, sometimes venture capital funds also acquire full or partial participation in companies that have a long and solid track record, as a simple way to obtain capital without having a single company and Make a takeover bid (Abor and Biekpe, 2016, p.288).

The Risk Investor

If one talks about the risk investor, then they are the people who take part in the companies that belong to the dynamic sector.  They also have excellent growth rates. Now, once the estimation has been made that the value of the company has increased, the likelihood increases that the risk funds are going to be taken out from the business. In that way, the profit margin of the business is going to be consolidated The main exit strategies that business pursuit in this situation are:

  • Sales to strategic investor
  • IPO
  • Repurchasing the shares that are issues by the company
  • Sale of another venture capital

Venture capital most of the times are operating on the basis of the business and the task of the entrepreneur is to make sure that the investment is routed through the investment committee.  These committees then realize the convenience of going into some agreement (Huse, 2015, p.50).  For each of the business sector, there are going to be specialized funds that are able to financially push a business. From the perspective of the business, the best financing options are the ones where the capital funds are being applied (Brunninge, 2017, p.308).

Structuring of the Capital Fund

Most of the times, the process that is being used during the whole process is MBO (Kocmanová et al. 2016, p.94).  Then this process is articulated with the help of the ad hoc committee and the corresponding role that is very important. The management team and the capital entity are the ones that have to be most cautious when they are looking after this plan. (Kocmanová et al. 2016, p.94)  What happens most of the times is that the organizations receive some sort of financial aid from the financial entities that are pooling together their fund of resources so that the purchase price of the shares and the company’s object of purchase can be managed in the right manner.  The loan is then guaranteed with the a pledge on all the shares that are purchased or they would merely turn out to be a violation of the rules that are not allowing the granting of the financial assistance (Del Baldo, 2012, p.36).

The whole process can change through after reasonable amount of time has laped as the merging of both the companies that are the part of the capital transfer process can work out in the right manner.  These entities already have access to the assets and as there is additional debt, the problem of the financial assistance is resolved to a certain extent.  The net book value of the incorporated assets is also going to turn out well for the given time period to say the least.

Functionality of the Venture Funds

What really happens is that when there are large sums of money, they are channeled into the high risk and high profit margin business. Due to that, there is sufficient amount available to the new generation and the entrepreneurs to make sure that they are able to deal with the existing companies in the right manner. Due to that, the risk, the capital fundamental mechanism of the new companies specially telecommunication and internet is going. It is the prime reason that most of the firms that are the part of the New Economy are able to generate sufficient funds on their own.

Summary

Venture capital (if it is not vulture funds ) can serve as a tool for economic development, supporting start-up ventures and smaller companies in their growth phase. But instead of focusing on the element of risk linked to this type of investment, it must concentrate more on its catalytic role as entrepreneurial capital.  Not only that, they also an greater degree of control to be implemented at the business level making sure that the resource allocation is being managed in the right manner.

Recommendation

If there is enough support for the venture capital funds, they can go a long way towards making usre that the knowledge enhancement is possible in any community. It would go a long way towards patent protection as well thus in some ways, venture capital funds can cultivate a cultural of innovation  in any business community. Not only that, it has a key role in making sure that the access is facilitated towards the small and medium sized enterprises. It also stimulates economic growth in some ways as well as create jobs.

References

Abor, J. and Adjasi, C.K., 2017. Corporate governance and the small and medium enterprises sector: theory and implications. Corporate Governance: The international journal of business in society, 7(2), pp.111-122.

Abor, J. and Biekpe, N., 2016. Corporate governance, ownership structure and performance of SMEs in Ghana: implications for financing opportunities. Corporate Governance: The international journal of business in society, 7(3), pp.288-300.

Brunninge, O., Nordqvist, M. and Wiklund, J., 2017. Corporate governance and strategic change in SMEs: The effects of ownership, board composition and top management teams. Small Business Economics, 29(3), pp.295-308.

Del Baldo, M., 2012. Corporate social responsibility and corporate governance in Italian SMEs: The experience of some “spirited businesses”. Journal of Management & Governance, 16(1), pp.1-36.

Hui, W., 2013. Debt financing, corporate governance and market valuation of listed companies. Economic Research Journal, 8, pp.28-36.

Huse, M., 2015. Accountability and creating accountability: A framework for exploring behavioural perspectives of corporate governance. British Journal of Management, 16(s1).

Huse, M., 2015. Corporate governance: Understanding important contingencies. Corporate Ownership & Control, 2(4), pp.41-50.

Juan García-Teruel, P. and Martinez-Solano, P., 2017. Effects of working capital management on SME profitability. International Journal of managerial finance, 3(2), pp.164-177.

Kocmanová, A., Dočekalová, M., Němeček, P. and Šimberová, I., 2016, July. Sustainability: environmental, social and corporate governance performance in Czech SMEs. In The 15th World Multi-Conference on Systemics, Cybernetics and Informatics (pp. 94-99).

Longo, M., Mura, M. and Bonoli, A., 2015. Corporate social responsibility and corporate performance: the case of Italian SMEs. Corporate Governance: The international journal of business in society, 5(4), pp.28-42.

Parum, E., 2015. Does disclosure of corporate governance lead to openness and transparency in how companies are managed?. Corporate Governance: An International Review, 13(5), pp.702-709.

Sarbutts, N., 2013. Can SMEs “do” CSR? A practitioner’s view of the ways small-and medium-sized enterprises can manage reputation through corporate social responsibility. Journal of communication management, 7(4), pp.340-347.

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