Venture investment has helped many companies reach a high level and brought a lot of money to investors who believe in young and talented specialists. But this does not negate the fact that this activity is inevitably fraught with high risks.
Venture investment and venture business
Such investments can be described as investing in a specific company, project or idea, which are at the very beginning of their development and implementation. Of course, such an investment involves high risks. But at the same time, many investors are ready to act, because if the project is successfully developed, they will receive significant profits.
We can say that the risk that accompanies direct venture capital investments is proportional to the level of potential income.
As a rule, progressive developers or novice businessmen form an actual idea, which in the future can bring a very high income. But, as often happens, they do not have the necessary funds to launch the project. In this case, startups turn to investors, presenting their idea. Persons who agreed to finance a risky project with a bright future become co-owners of the newly formed company.
So venture capital investment is one of the ways to make quick and risky money. At the same time, it is possible to acquire shares in a company that has recently entered the stock market. There is also a calculation that the value of securities will increase significantly over time.
Types of Venture Investments
In principle, it would be logical to distribute by varieties not the investments themselves, but the companies that apply for them.
You can start from a startup. This is a company formed recently and, accordingly, does not have a long market history. Such organizations are in need of funding, due to insufficient funds for research and the organization of subsequent sales. Venture capital investments in startups are one of the most popular areas.
Investing in a project that is at the idea level. In this case, there is also a need for additional research and testing to create pilot samples of the product before it is introduced to the market.
Investments can also attract those companies that are already fully functioning, but are experiencing a crisis of funds needed to expand sales and production. Financing is often used to increase fixed assets for working capital or to conduct marketing research.
Another object of investor interest may be an organization with finished products, but at the same time being in the initial stage of commercial implementation.
As you can see, venture capital investments are a fairly popular investment area.
Venture business
This term should be understood as investments, which in most cases have the form of equity. It is invested, as a rule, in fast-growing enterprises that demonstrate significant potential. Such funds are often aimed at the implementation of relevant technological innovations.
Such funding is focused primarily on the commercialization of research results in high-tech and high-tech fields. Prospects for such investments are not guaranteed, and the risk, of course, is significant.
In this case, venture capital investment is the type of financing in which investors are not focused on receiving dividends. Their goal is to sell their stake in the company after its market value is sufficiently high.
As for the process of selling such a share, it can be put up on the open market. Another company, developing in the same area, is capable of buying it. The interest of business partners is not excluded, who will be happy to increase the percentage of their investments in a specific project.
Entry Threshold for Investing
In order to understand the essence of venture capital investments, it is worth considering the mechanism of their action, which may have certain features. One of them is a high entry threshold.
We are talking about the following fact: for venture investment, at least 10 thousand dollars are needed, and in some cases several million. Therefore, for those who have a couple of thousand, there is no point in considering such a perspective.
But at the same time there is an alternative for those who have few funds and are ready to risk them. Such an opportunity is provided by joint investment institutions or funds. Each such fund has a manager, whose activity is reduced to the accumulation of funds of small investors and their subsequent investment in a promising project. Risks do not become less.
The tangible and obvious minus of such a scheme is that all participants in the fund are forced to rely on the competence of the manager, not being able to make decisions independently.
Lack of control and a long investment horizon
Another feature of venture capital investments is that none of the people financing the project seeks to have a controlling stake, as well as manage the company. The only thing they agree to is the risk of losing investment. As for the responsibility for the development of the project, it falls mainly on the shoulders of top managers. But if the company develops rapidly, and investors fix the wrong, in their opinion, facets of the strategy, then they can join the directors to exercise personal control over the organization. But this is rather an exception than a rule.
As for the long horizon of investment, we are talking about the lack of the ability to withdraw the invested funds at any convenient time. This is due to the fact that almost always the project assimilates the entire amount of investments, and you can get them only if the company manages to stay on the market. Initially, it is worthwhile to understand that for some companies it may take several years from the start to enter the stock market.
Lack of guarantees
Venture investment is a type of investment in which players receive either all or nothing. This means that after the fact of financing, the investor can wait years for the company to develop and eventually sell its stake for several million dollars. But there is a risk that after a long wait, the project will be unprofitable and all investments will be lost. In the vast majority of cases, the actual amount of profit for startup participants can be determined only after the company's shares are publicly listed on the stock exchange. As a result, the stock price of the company will determine its investment attractiveness.
The situation in Russia
If we consider Russian venture capital investments, it is worth noting that such a direction of financing cannot be called particularly popular in the CIS. Initially, even foreign investors invested their funds even in the most promising projects within the Russian Federation. But at the moment, Russian venture funds have already been formed , which are developing this type of investment. For example, Russian Venture Company, together with the REVI Association, constantly monitors various funds and provides expert assistance in their development.
For these purposes, various specialized presentations, forums and exhibitions are organized.
Conclusion
Venture investment, of course, is popular in the world, because it allows bright companies to grow and often brings fabulous incomes. But it is worth remembering that many investors have lost funds invested in seemingly promising projects. Therefore, we can conclude that this path is for experienced businessmen.