Chapter 17
Venture capitala
17.1 INTRODUCTION
“Someone, somewhere, is making a product that will make your product obsolete”
—Georges F. Doriot, America’s First Institutional Venture Capitalists
Venture capital involves investing in nascent early-stage private companies and making them profitable by injecting both financial and human capital into these businesses. The capital is most commonly provided by venture capital (VC) firms, who work closely with the incumbent founder/entrepreneur, with the hope of achieving monetary success by backing only the most innovative and commercially interesting ideas.
VC raised in the U.S., the largest venture market globally, comprises only 0.2% of the GDP according to a study completed by the U.S.-focused National Venture Capital Association (NVCA). Yet, in spite of this small relative size, the economic impact of VC is disproportionally much more significant—venture investments have been credited with creating more jobs, driving more innovation, generating more revenues, and contributing more to economic growth than the equivalent capital investments in non-venture-backed firms. According to statistics produced by the NVCA, 11% of U.S. private sector jobs come from venture-backed companies and venture-backed revenue accounts for 21% of U.S. GDP. In Europe, VC firms invested more than €270bn in over 56,000 companies and venture-financed companies created 1 million new jobs between 2000 and 2004 (EVCA, 2005).
Most readers would be familiar with ...
