Overview of the Venture Capital Industry

Venture capital is not a very well understood area.1 Overall, venture capital is best viewed as a professionally managed pool of equity capital. Frequently, the equity pool is formed from the resources of limited partners. Other principal investors in venture capital limited partnerships are pension funds, endowment funds, and other institutions, including foreign investors. The pool is managed by a general partner—that is, the venture capital firm—in exchange for a percentage of the gain realized on the investment and a fee. The investments are in early-stage deals as well as second- and third-stage deals and leveraged buyouts. In fact, venture capital can best be characterized as a long-term investment ...

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