|
|
Venture Financing, Venture Financing, Venture Financing, Venture Financing, Venture Financing, Venture Financing, Venture Financing, Venture Financing, Venture Financing
|
Venture Financing The nature of the ‘new’ economy has profound implications for the way the new business is financed. High-tech start-ups go through multiple funding rounds. Equity financing conventionally follows a trajectory from friends & family, business angels, through venture capital (VC), to an initial public offering (IPO).
Venture capital cannot
finance innovation on its own. Too many VC funds remain
unwilling to invest in high-tech start-ups in the early stage,
often because they lack the investment appraisal capacity to act
as ‘first investor’. To be fully effective, venture capital
must form part of an unbroken investment chain. Dynamic
innovation demands an unbroken financing chain, from seed
capital to stock market.
Development of
networks of business angels as sources of pre-revenue seed
funding and management guidance is essential and will encourage
VC funds to make more early-stage investments.
Business angels are wealthy individual investors -
usually, people who have made their own money as entrepreneurs.
Better equipped than banks and most capital funds to assess the
potential of very young business, they contribute not only
equity but also much needed business expertise, offering company
founders hands-on support and advise. Angels bridge the gap
between the personal savings of entrepreneurs and their families
and friends - often an important source of seed capital - and
the ‘second round’ financing which venture capitalists are able
to offer. In US they have helped to fuel the
remarkable self-sustaining innovation and economic growth
of the past decade by recycling entrepreneurial wealth and
talent locally and regionally. In Europe, Business Angel
Networks (BANs), generally funded by public money, have proved
to be remarkably effective - raising awareness among potential
investors, providing and independent and confidential matching
service, and training entrepreneurs to prepare and present the
information that angels will require. BANs stimulate the flow of
informal risk capital to start-ups with high growth potential.
To ensure seamless
integration of financing through the life cycle of a company,
good relations between the business angel and VC communities are
essential. Stock markets for high growth companies also
stimulates venture capital activity by offering an ‘exit route’
of flotation. They offer a means for venture capital funds to
realize a return on their investment in new companies.
|
