Venture Capital Investment

Venture companies are companies that invest in high potential startups.

Modern venture companies stem from ARDC (American Research and Development Corporation), who raises funds from institutions. ARDC is founded by George F. Doriot of Harvard University in 1946, to commercialize a research conducted by MIT. ARDC’s early success in the venture investment has attracted many financial institutions and capitals to the venture investment.

Venture companies usually invest in startups that need support on capital and management. Venture companies provide capital, management, and technical support that are necessary for startups to grow and expand. After the successful nurture of a startup, venture companies obtain their returns through IPO or M&A.

How Venture Capital Works

There are several critical limitations in the venture capital.

First of all, venture capital investment has high barriers of entry for individual investors. Since venture companies usually raise funds from professional investors and state-led FOF, individual investors seldom get any chance to participate in venture capital funds. Moreover, an individual investor must satisfy the minimum investment amount (100,000 USD ~10,000,000 USD) to be qualified as a professional investor.

In fact, venture companies are facing myriad issues in fund raising because it is difficult to find interested LPs (Limited Partners). It is difficult to attract LPs unless a venture company has a stable investment record and a promising target market. Investors and LPs tend to avoid investing in companies that lack legitimate investment history since the investors prefer safe investment to high-stakes investment.

Another problem is that individuals have little recourse to liquidate their shares while venture companies can recover their funds through IPO, M&A, or equity liquidation. In order to protect investors from capital loss, a legitimate infrastructure, such as over-the-counter market for trading non-listed company stock, is needed.

The last problem resides in the limitations of the international remittance. This limitation is crucial especially for venture capitals because there are numerous opportunities overseas. International investment usually require large-scale remittance. In order to transfer the massive remittance abroad, investors must go through multiple banks, and deal with exchange rate issues, commission fees, and complicated documents. The slow processing speed (It usually takes 2 to 10 days to receive an international payment) is another problem in overseas payment. After all, the whole payment procedure turns out to be slow and burdensome for both investors and investees.