At A Glance – Venture Capital Funds
The key to finding and funding success?
Funding is absolutely vital to the success or failure of a business. There are various ways to find investment, but attracting the attention of venture capitalists (VCs) is particularly beneficial for new companies. Usually, startups aren’t big enough to raise public capital or get a considerable bank loan. There’s a high level of risk involved for VCs, who commit resources to a business that could be unsuccessful. As venture capital is a type of equity financing, VCs normally receive a considerable ownership share as well as control over important company decisions.
Often, venture capitalist money is managed through a collective VC fund. This pool of capital is invested in chosen beneficiaries, and the members of the fund are charged a management fee. But before money can be invested, it needs to be raised. This month, the Vision Fund announced that it had raised $93 billion for investment in innovative technology, making it the biggest VC tech fund in the world. The growth of giant investors like the Vision Fund is disrupting the venture industry, making it harder for smaller VCs to reach promising startups. Massive investment pools are also disrupting traditional venture capital patterns by discouraging emerging companies from completing an ‘exit’ – in other words, going public. So, whilst VC funds are increasing the availability and amount of funding, this isn’t necessarily resulting in initial public offerings (IPO).
Gaining VC funding can be hugely positive for young companies, as it allows them access to the resources and influence of an established business. Startups should be wary of handing over large chunks of equity, however, so that they retain their own identities. This is especially the case as large VC funds begin to dominate the market.