Venture Capital Fund

Before knowing about venture capital funds it is better to understand firstly the meaning of venture capital. Meaning of venture capital is different to many different people. The definition of venture capital fund is broad because many people are involved in the business of funds and all of them have huge expectations.

Definition of venture capital fund:

Venture capital is a method of business funding for companies who are looking to grow beyond normal rates of business growth. It is the money which acts a fuel for the growth of the business. It is a form of equity investment where the investors who give the money also get partial ownership of the company through shares and some sort of control.

Venture Philanthropy:

  • Venture philanthropy is a field of philanthropic activity where private activity is applied in the charitable sectors. It can be characterized as:
  • The capability of providing the skills for the development of the charity.
  • The desire to enable the donors to maximize the social return on their investment whether that is a financial donor or a volunteer.
  • The active partnership with charities to achieve agreed outcomes or other important changes.

Venture capital financing:

Venture capital financing is the way by which you could raise money for starting your small business. There are two broad sources of finance equity and debt.

Equity means money brought in by the owners and debt means money is obtained by the investors i.e. you have to pay the interest as well as the amount to the lenders. Before giving funds, lenders look at the capability of the borrower to pay the interest and the loan amount by looking at the quantum of equity investment. They know that without adequate equity, when a business go bankrupt then they would loose money they have lent. So business must show reasonable equity financing.

Venture capital can also be a source of equity funds. The advantage of venture funds is that you have not to pay the interest from the start because venture capitalist can wait for a reasonable period of time so that business could establish and reap good profits.

Venture capitalists can earn their money by selling the company's stock in the stock market when the price is high. So you have to just pay the dividends to shareholders not the money which you borrowed from the lender.

Venture capitalists invest in the business which have the experience of 5 to 10 yrs because it helps in assessing the management strength of the business from the performance record during the past. So a new businessman could not hope to venture funds because they don't have any performance records to show.

The main objective of venture capitalist is to earn money either through the dividends from the business or by selling their stocks at high prices in the stock market.

Before signing the letter of content few things you need to take into consideration: Firstly check the current business situation and decide whether the venture capital financing is the wisest choice for your company. Secondly, you have to loose unnecessary shares to venture capital firm.

Besides the timing of venture capital financing you have to research on venture capital companies that which company provides the best contacts, customers, and knowledge.

Social venture capital:

This fund has been set up to provide investment for the community enterprises, so that we can accelerate their growth for long-term community renewal. These funds also finance the technical support services to build the community enterprises and strengthen their delivery capacity and long-term viability.

Venture capital firm:

If you are looking for a venture capital firm then it is important to understand that all firms offer different things to different companies. As venture capital firms vary from one another so you have to understand which firm has which specialization. In fact more time you waste in sending your business plan to various capital firms the less time you focus on the firms that want you to look at your business plan. So, it is better to do a research on venture capital firms that you wish to target before you send out your first funding request.

The venture capital firms listed below have driven the economy to new heights: Acacia, Benchmark Capital, Battery Ventures, Kleiner Perkins, Chase Capital, CMGI, Draper Fisher Jurvetson, Sequoia Capital, Sevin Rosen, Softbank, and TL Ventures.

Hedge funds:

Hedge funds are the investment pools which are located outside the mainland for tax and regulatory reasons. The managers known as Hedge fund managers are normally paid on a fee-for-performance basis. These people use many techniques to hike returns. Nowadays, more and more people are investing in hedge funds. This interesting investment can make people a lot of money. In comparison to other investments hedge funds have a lot of risk. Like mutual funds they don't have the same mechanisms to protect the investors. Inspite of having few protections people have not stopped in investing in hedge funds.

Features of hedge funds:

Following are the features of hedge funds:

  • Hedge funds require private investment vehicles.
  • Large minimum investments are required for investing in hedge funds.
  • In terms of investors they are limited to a number of 499 and these investors can only invest in one fund.
  • These funds are available to only accredited investors.
  • Liquidity varies from monthly to annually.
  • They require more leverage.
  • Most hedge fund strategies try to hedge against downturns in the market but effectiveness depends on the fund.
  • Hedge funds typically charge high fees.

Classes of hedge funds:

There are three main classes of hedge funds:

  • Macro Funds which take large unhedged positions in national market based on top-down analysis of financial conditions.
  • Global Funds also take positions but on the bottom-up analysis, i.e. picking stocks on the basis of company's prospectus.
  • Relative Value Funds which take bets on the relative prices of closely related securities like Treasury bills and bonds.

Closed-end funds:

A closed-end fund also known as closed end company that sell shares like any other corporation and usually does not redeem its shares. This is established by selling a fixed number of shares to investors. Then these funds are traded on the stock exchange. The money is invested and managed by a professional portfolio manager. The funds share price can deviate from the net asset value depending on the investor demand for the fund itself.

Some of the basic characteristics of closed-end funds are:

  • Closed-end funds do not continuously offer their shares for sale.
  • The price of closed-end fund shares may be less or greater than the net asset value that trade on the secondary market after their initial public offering.
  • These shares are generally not redeemable i.e. close-end fund is not required to buy its shares back from investors. Some closed-end funds called interval funds offer to repurchase their shares at specific intervals.
  • The investment portfolios of these funds are managed by investment advisers and are registered with SEC.
  • Closed-end funds are permitted to invest in a greater amount of "illiquid" securities which means that they cannot be sold within seven days at the approximate price used by the fund in determining net asset value.

Closed-end funds are available in many varieties. They can have different investment objectives, strategies and investment portfolios. They can also be subject to different risks, fees and expenses.

Besides its characteristics, closed-end funds have many advantages and disadvantages.

Advantages of closed-end funds:

  • Closed-end funds can sometimes be purchased at a discount which means that sometimes they trade below the net asset value.
  • Closed-end funds can sometimes be sold at a premium which means that sometimes they can be sold for more than their asset value.
  • These funds have access to some investments and strategies.

Disadvantages of closed-end funds:

  • As the fund shares could be trading at a discount or premium, it could work against you.
  • These funds are plagued with broker trading fees.
  • These funds have a lot of risk.
  • These funds are harder to sell.
  • Closed-end funds tend to charge between 1-2 percent a year for management fees.
  • The price information of these funds is not always available.