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Capital Works Seeks To Explain The Venture Essay

¶ … Capital Works seeks to explain the venture capital industry, debunk myths and offer a view of what the role of venture capital is to the U.S. economy. Zider begins by explaining that venture capital does not provide as much money to start-ups as is often considered to be the case. In general, venture capital goes to follow-on funding for projects that were originally developed by governments or corporations. Those latter bodies perform the innovation task, and venture capital comes in once the product/service has been developed somewhat and needs to be taken to market. Because of this, venture capital is short-term money, not long-term. The objective of the venture capitalist is to commercialize an idea and then exit either by taking the company public or selling to a larger company. Venture capitalists exist, Zider points out, because this segment of the capital markets is underserved by other players. In that vacuum the venture capital business...

It is important that firms who are in such industries seek venture capital at the right time, after the startup phase and before the maturity stage when growth begins to slow.
Venture capital investors tend to be large institutional investors, for example pension funds, insurance companies and financial firms. For these investors, venture capital is a small part of the total investment portfolio and is generally considered to be among the riskier parts of the portfolio. They typically only invest in projects that are somewhat proven (in order to mitigate risk) and that have a high rate of expected return. The author debunks the myth that venture capitalists invest in people and ideas; rather, they tend to invest in good industries. The idea is that if a market has untapped demand, a good company entering that market can grow fairly quickly, and with a relatively low degree of risk.

The author points out some of the…

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Works Cited:

Zider, B. (1998). How venture capital works. Harvard Business Review. Nov-Dec 1998.
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