Read our Terms of Service before reprinting this article. The submitter specified above has claimed the rights to this article.
In the first half of the 20th century (1900-1950)-- with very few exceptions-- venture capital investments were made by very wealthy families like the Rockefellers (Standard Oil), the Vanderbilt family (shipping lines and railroads), and the Warburg family (financial dynasty including banking, and the US Federal Reserve). Among the many businesses these families funded one must include both Eastern Airlines and Douglas Aircraft.
Venture capital is not a new business arrangement, but has been in practice for centuries. For example, when Magellan convinced the King and Queen of Spain to fund his voyage in searching for the Spice Islands, the King and Queen dictated a deal to Magellan whereby they took over 75 percent of the profits from his ‘round the world, three year adventure. In an era when a large handful of spices could be sold for enough money to buy a house and care for a person for many years, Magellan did not see the fruits of his daring adventure but instead was killed on the voyage. (There is a lesson in that.)
Origins of Modern Private Equity
Prior to 1940, development capital was known as “money orders.”
After World War II (Post-1945) the true private equity investments emerged as the first two venture capital companies (American Research and Development Corporation -ARDC- and J.H. Whitney & Company) in the United States.
ARDC was founded by Georges Deroit, Ralf Flanders, and Karl Compton. (Deroit was the former Dean of Harvard Business School. Compton was the former president of MIT.) Their goal was to encourage private investors to invest in businesses developed by former American soldiers after they returned from World War II.
ARDC is important in the venture capital world because this firm was the first to raise money from sources other than wealthy families like the Rockefellers and Warburgs. ARDC impressed the investing world when the company’s 1957 investment of $70,000 grew to be worth over $350 million when the company went public in 1968. This huge economic return for ARDC caused a huge growth in the industry as investors sought to duplicate those returns.
Early Venture Capital and the Growth of Silicon Valley
In 1958 the Small Business Investment Act was passed by the Small Business Administration (SBA) which allowed Small Business Investment Companies (SBICs) to provide financing, including locating private investors, to aid in the financing of small businesses in the United States. (Source: Small Business Administration Investment Division (SBIC).
In the 1960s and 1970s venture capital firms invested in high growth companies in the electronic, medical, or data-processing areas. As time progressed most uneducated investors saw VC funding as only technology business funding because VC firms seemed to only invest in them. Although technology funding is still a strong suit among VC firms, venture capital can now cover multiple areas of development.
During the 1960’s, creative investors have developed the primary legal structure to aid in financing the growth and development. “General and Limited Partnership” legal structures are the perfect opportunity for investment in private equity. This type of structure, with some variation, has been used in a wide range of investments ranging from real estate syndication through private equity business investments.
The legal structure places the general partner (GP) in an unlimited liability position if an investment fails but limits the risk of the limited partner (LP) (hence the name) to the amount invested, if the business fails.
This form of partnership often carries with it an annual management fee of less than 2.5 percent as well as 20 plus percent of the profit proceeds to the GP. The risk reward ratio is high enough that General Partners are more than satisfied to accept the risk, and the Limited Partners see the exponential growth development into multiple returns against the capital they have contributed.
In the 1970s, VC firms grew fast in Silicone Valley on Sand Hill Road almost next door to emerging technology firms like Hewlett Packard, Intel, and Apple. As these firms became more successful and VC investments paid-off, more and more individuals left these successful companies to start their own firms and sought additional VC funding.
It became an upward spiral—an American success story, that has had bumps in the road, but still successfully continues today.
Interestingly during this same period, with the passage of the Employee Retirement income Security Act (ERISA) in 1974, corporate pension plans could place money in this type investment, creating a new source of revenue.
At the start of the 1980s there were very few VC firms in Silicone Valley, but by the end of the decade, the number of VC firms in the same area had increased to over 650 with enormous amounts of money chasing too small a number of truly good business opportunities.
In the mid-1980s, returns began to decline and after the stock market crash of 1987 only the Japanese and Koreans seemed to be injecting money into start-up businesses. Instead, the business VC firms shifted from investing in start-up businesses to seeking leveraged buy-outs and hostile takeovers (as was portrayed in movie “Wall Street”).
Bibliography
Joseph W. Bartlett, "What Is Venture Capital?". VCexperts.com.
"Venture Impact: The Economic Importance of Venture Backed Companies to the U.S. Economy". Nvca.org. Retrieved 2012-05-18.
Ante, Spencer E. (2008). Creative Capital: Georges Doriot and the Birth of Venture Capital. Cambridge, MA: Harvard Business School Press. ISBN 1-4221-0122-3.
Article: The New Argonauts, Global Search and Local Institution Building. Author: Saxeninan and Sabel.
1971, a series of articles entitled "Silicon Valley USA" were published in the Electronic News, a weekly trade publication, giving rise to the use of the term Silicon Valley.
Kirsner, Scott. "Venture Capital's Grandfather." The Boston Globe, April 6, 2008.
Small Business Administration Investment Division (SBIC)
The New Kings of Capitalism, Survey on the Private Equity industry The Economist, November 25, 2004
The Future of Securities Regulation speech by Brian G. Cartwright, General Counsel U.S. Securities and Exchange Commission. University of Pennsylvania Law School Institute for Law and Economics Philadelphia, Pennsylvania. October 24, 2007.
Venture Impact (5ed.). IHS Global Insight. 2009. p. 2. ISBN 0-9785015-7-8.
WGBH Public Broadcasting Service, “Who made America?" - Georges Doriot”
Wilson, John. The New Ventures, Inside the High Stakes World of Venture Capital.
DISCLAIMER: All information, content, and data in this article are sole opinions and/or findings of the individual user or organization that registered and submitted this article at Isnare.com without any fee. The article is strictly for educational or entertainment purposes only and should not be used in any way, implemented or applied without consultation from a professional. We at Isnare.com do not, in anyway, contribute or include our own findings, facts and opinions in any articles presented in this site. Publishing this article does not constitute Isnare.com's support or sponsorship for this article. Isnare.com is an article publishing service. Please read our Terms of Service for more information.Dr. Brent Lundell owns www.GainStreamGroup.com, a venture capital sourcing and consulting company, and is a partner in The Guinn Consultancy Group, Inc. The Guinn Consultancy Group provides a wide array of business services, including seminars, webinars, and venture capital sourcing services. See the group website at www.theguinnconsultancygroup.com or contact them for additional information at 800-335-9269.Venture Capital Firms and Funds Submitted by: Dr. Brent Lundell, PhD, MBAVenture Capitalists What is a venture capitalist. A venture capitalist is an individual who makes investments in businesses before the firm goes public. In addition to bringing money to the business venture, capitalists usually bring managerial and business-specific talent to the business, and will take assume equity and generally a board seat in return for investment in the business. What is a venture capital fund...VC Fund Types, Players, Structure Submitted by: Dr. Brent Lundell, PhD, MBATypes of Venture Capital Funds Let?s do a quick review of the types of venture capital funds. VC firms differ in their investment approaches. Some companies ? Invest for a quick turnaround, by going public?selling within the public equities markets ? Invest for the long-term, planning for slower growth, but strong tax benefits ? Invest in new ideas ? Invest only in their areas of expertise ? Invest anywhere in the world, as long as potential profits are strong ? Invest in fledgling and start-up companies ? Invest in established and profitable companies that need expansion assistance ? Invest only in certain, defined industries ? Invest only locally or regionally ? Invest only nationally ? Invest only internationally Venture Capital Firm Players Venture capitalists (VCs) usually come from a finance or an operational experience background...Venture Capital Basics, Part 1 Submitted by: Dr. Brent Lundell, PhD, MBAVenture capital, a subset of private equity investing, usually represents money provided by investors to small or start-up companies with perceived long-term growth potential. Venture capital can be injected into a company at any time the company wants to expand, sell-out, or merge with another company. Often VC money is invested after the start up (called the ?Seed?) phase of a business and is usually a precursor to generating a return through an IPO or trade sale of the company...More History: VC View on Investing, Due Diligence, And Investor Involvement Submitted by: Dr. Brent Lundell, PhD, MBAAlthough Ronald Reagan expanded the economy through governmental defense spending from the middle to the end of the 1980s, venture capital profits declined through the mid-1990s and a new wealth generator for venture capitalists replaced funding start-up companies?. the Leveraged Buyout. For definition, a leveraged buyout (LBO) is the purchase of a company with a combination of debt and the target company?s assets, which might include airplanes, real property, and/or cash flow...Funding, Preparation, Finding a VC Firm Submitted by: Dr. Brent Lundell, PhD, MBAObtaining venture capital is substantially different from raising debt or applying for a loan from a direct lender, like a bank. It takes time, effort and energy to create a compelling sales package that venture capital groups will review, find interesting, and work to fund. Lenders have a legal right to interest on a loan and repayment of the capital, irrespective of the success or failure of a business...Know What Car Insurance Information That You Should Know Buying auto insurance can be a big decision, but it doesn't have to be a choice that leaves you in confusion over what you have just purchased. This article can help you to navigate the difficult wording and terms that insurance companies seem to love to create, just to confuse you. If you have developed a history of trouble-free driving over the course of several years, inquire with your car insurance company about a no-claim discount...The Appeal of Penny Stocks Traders use the term penny stocks to describe shares that sell for less than $5. 00 apiece. Also known as micro-cap stocks, penny stock generally have a capitalization of between $50 million and $300 million. Stocks with capitalization below $50 million dollar are Nano-cap stocks. Penny stocks are much riskier than traditional stocks, they are subject to less rigorous filing and listing standards, and they are prone to volatile price swings...The Easy Way to Buy and Sell Penny Stocks Stocks that trade at low price, usually under $5. 00 a share, off the major stock exchanges are known as penny stocks. Companies that offer penny stocks tend to be small, highly volatile companies that may lack the liquidity needed to trade on either the New York stock exchange or the NASDQ. Penny stocks are traded "over the counter", and there's no need to engage the sometimes pricey service of a brick and mortar investment broker...Tips on Purchasing Penny Stocks Savvy online investors are always on the lookout for hot penny stocks. Penny stocks, also known as micro- cap stocks are relatively inexpensive stocks bough off market, or over the counter. Penny stocks generally trade at less than $5. 00 a share by new or growth companies, or companies facing capitalization, liquidity, or debt challenges. Since penny stocks are not traded on the major, national markets, like New York Stock Exchange or the NASDQ, most penny stock investors trade them on-line without the help and expertise of a traditional broker or brokerage house...What to Look For When Buying Stocks Everyone has a system or a theory for picking successful stocks. When you buy stocks your are investing in the long term financial growth and success of the company, so there are a number of factors you should consider before you purchase stock. When you look at a company's prospectus or financial statement, pay attention to the following details, as they will help you form a comprehensive picture of the company's financial health and growth potential: ? Earnings: A company should have several consecutive successful years, which will be identified by a growth in their earnings...What You Need to Know About Penny Stocks Most investors shy away from penny stocks, and most of the time, with good reason. Penny stocks are hard to research, exceptionally volatile, and can drain an account in a matter of minutes with a bad down turn. For those investors who like a little more risk and the possibility of an even bigger reward, investing in penny stocks can be the key to their financial security. Fining legitimate penny stocks, however, can be difficult, and many investors are left wondering where they can find new penny stocks...What You Should Know About Investing Online Investing online is an easy and affordable way to manage your stock portfolio. In years past, investments were handled through brokers, who offered their clients expert advice and research and helped the clients create and manage a long-term wealth and a financial management strategy. When you are investing in stocks on the net, you can?t rely on the expert advice and counsel of a broker, you must do your own research and design a portfolio that will meet both your long and short term financial goals...Our Software Suite Provides That Added Security For All Forex Investors to Watch Over Their Broker The increasingly popularity of foreign exchange trading, also known as Forex trading, has caused our company to stay in business. The Forex Market is the largest financial market in the world. It is important to stay current with all the financial news, so they can keep up with their investment portfolios. Most investors turn to Forex brokers. These brokers are people who tackle the global markets for the investor...Investors Should Keep a Watchful Eye on Their Forex Brokers? Actions These days, foreign exchange trading (also known as Forex trading) has become rather popular. Forex trading is simply defined as buying and selling of foreign currencies on the Forex Market. The widespread approval is the result of the many benefits you can find as you trade this way. Some include the market hours that are 24 hours a day, five days a week. The market is the largest financial market in the world...Metatrader 4 Tool Keeps Forex Brokers Clean Here's an interesting peccadillo for you to solve: what happens when your currency broker waits a bit too long to make a transaction that results in a loss for the trader, but which may, in the long run, may end up making the broker a little more on the back end. How can you find out if that happens. Same Tools If the foreign exchange trader (forex trader) and the foreign exchange broker (forex broker) are using the same basic suite of tools, you can look at some of the administrative features provided for traders to ensure that their orders are being placed in a timely manner (virtual dealer plugin)...Trading Penny Stocks Penny stocks or micro-lode stocks, are stocks with trading values below $5. 00 a share and with market caps below $200 million. Penny stocks are generally issued by small companies, start up or growth companies, or companies with liquidity, capitalization, debt, equity, or sales and growth challenges. Since penny stocks are not as closely regulated by the Security and Exchange Commission (SEC) as other, major stocks, they tend to be more volatile and a riskier investment than other, more traditional stocks...What to Consider When Investing in Stocks Selecting good stocks requires the investor to consider his or her long and short-term financial goals, research companies and their management practices, and create and implement a strategy to optimize their return on investment. Analysts have a number of theories and practices they use to make decisions on whether a stock is a ?buy?, a ?sell? or a ?hold?. While every analyst and broker takes a different position, they all look at the same financial information and data...What to Know About Online Investing Ten years ago, online stock trading was nearly impossible. To buy or sell stocks, one needed to work through a brick and mortar broker, who often charged hefty fees for the privilege. Today, there are a number of discount and on-line brokerage firms. E Trade led the way by offering a broker free, although still expensive way to manage the stock market on your own. Since the introduction of on-line brokerages, buying, selling, and trading stocks has become easier and less expensive for both the consumer and the on-line firm...How to Get the Best Deal on Car Insurance in Salt Lake City Submitted by: Elizabeth EisenhowerFinding the right car insurance for you in Salt Lake City is easy if you know how insurers calculate premiums. Several factors are taken into consideration, including your age, sex, occupation, and the size, type, and age of your car. There is no one custom policy that is suitable for everyone; in fact an auto insurance policy can be very unique to the individual. The right policy for someone else could be completely wrong for you...Finding a Financial Advisor For International Tax Planning Submitted by: Giorgos GeorgiouInternational tax planning draws up the classic picture of notorious illegality and corporate hording of offshore money all to evade taxes. Although the reputation of offshore holdings is a negative one, it can positively affect the pocketbooks of individuals and businesses. Finding an efficient financial planner to help organize your plan for maximum profits and minimizing taxes is simple enough. First of all, be warned that financial planning is a highly unregulated endeavor in most nations...More Related Article InformationArticle Section → Finances | Published: March 21, 2013MLA Style Citation: APA Style Citation: Chicago Style Citation: Article Tags DefinedDefinition of the Term: Business1. incidental activity performed by an actor for dramatic effect
?? 1 → His business with the cane was hilarious2. the principal activity in your life that you do to earn money
?? 1 → He's not in my line of business3. the activity of providing goods and services involving financial and commercial and industrial aspects
?? 1 → Computers are now widely used in business4. the volume of commercial activity
?? 2 → Show me where the business was today1. a rightful concern or responsibility
?? 1 → It's none of your business2. an immediate objective
?? 1 → Gossip was the main business of the evening1. business concerns collectively
?? 1 → Government and business could not agree2. a commercial or industrial enterprise and the people who constitute it
?? 1 → He bought his brother's business?? 2 → A small mom-and-pop business?? 3 → A racially integrated business concern3. customers collectively
?? 1 → They have an upper class clientele
Definition of the Term: Funding1. financial resources provided to make some project possible
?? 1 → The foundation provided support for the experiment
1. a garment size for a small person
1. the slender part of the back
1. limited or below average in number or quantity or magnitude or extent
1. made to seem smaller or less (especially in worth)
?? 1 → Her comments made me feel small2. limited in size or scope
?? 2 → A newspaper with a modest circulation4. lowercase
?? 3 → E.e.cummings's poetry is written all in minuscule letters5. not large but sufficient in size or amount
?? 3 → Helped in my own small way6. slight or limited; especially in degree or intensity or scope
?? 1 → A series of death struggles with small time in between7. (of children and animals) young, immature
?? 1 → What a big little boy you are8. have fine or very small constituent particles
9. low or inferior in station or quality
?? 3 → A modest man of the people
Definition of the Term: Venture1. any venturesome undertaking especially one with an uncertain outcome
2. a commercial undertaking that risks a loss but promises a profit
1. an investment that is very risky but could yield great profits
?? 1 → He knew the stock was a speculation when he bought it1. put forward, of a guess, in spite of possible refutation
?? 1 → I am guessing that the price of real estate will rise again?? 2 → I cannot pretend to say that you are wrong1. proceed somewhere despite the risk of possible dangers
?? 1 → We ventured into the world of high-tech and bought a supercomputer2. put at risk
?? 1 → I will stake my good reputation for this
No comments:
Post a Comment