The history of Venture Capital - How did it evolve?
The history of Venture Capital dates back to the early 1960s. It arose out of a need for funds that could be used by start-ups and new businesses, which were typically unable to receive loans from banks. There are many different types of VC firms, each with its own focus on an industry or region.
VC funds were first introduced in the early 1960s to support start-ups and new businesses. Typically, these companies could not receive loans from banks due to their lack of collateral or sufficient credit history. Thus, venture capitalists began as a way for entrepreneurs to access capital without having assets other than those they had created themselves (i.e., their intellectual property).
However, the root of venture capital can be traced back to early after WWII in 1946, when Georges Doriot founded the American Research and Development Corporation (ARDC). The company would become known as one of the earliest examples of modern venture capital firms. ARDC was one of the first to use equity investments in early-stage, high-potential start-ups with excellent growth potential.
ARDC’s success allowed other VC companies to emerge and invest in new opportunities. One such company is Venrock (venture + Rockefeller). The firm was founded by Laurance S. Rockefeller in 1969 following a merger between his family office and two investment advisors that helped fund Intel Corp., Apple Inc., Compaq Computer Corp., among others over its 40+ year history. As more VC firms emerged, they began targeting different industries for investment around the world, including Europe, Asia, Latin America & Canada.
VC Firms vs Angel Investors
The types of investors that are typically categorized as “VCs” can be differentiated from angel investors. VC firms are often institutional investors, meaning they have pools of capital from which to invest in start-ups. In contrast, angel investors are usually wealthy individuals who invest their own money into early-stage businesses. While both groups provide important funding for start-ups, the focus and goals of each are different. VCs typically want to invest in businesses that have the potential for high growth and a large return on investment. They are also looking for businesses with a sound business model, experienced management team, and a marketable product or service.
In contrast, angel investors are often more interested in backing passionate entrepreneurs who have a great idea but may not have all the resources they need to make it a success. While angel investors are still looking for businesses with great potential, their focus is typically on nurturing an idea until it can stand on its own two feet. Nonetheless, it is important to emphasize that every angel investor and venture capitalist has their own agenda and strategy, but this is a common structural framework of their general relationship with the startups.
Venture Capital and the Economy: How VC investment affects countries & regions around the world
The global economy has been driven by innovative companies such as Apple, Google, Tesla Motors and Facebook, thanks, in part, to investments made by venture capital firms like ARDC or Venrock. In addition to creating jobs and economic value, VC-funded companies also tend to be more efficient and productive than their peers, which can lead to increased innovation in the economy as a whole.
In order for a start-up ecosystem to thrive, it needs a variety of different players to be successful. This includes angel investors, accelerators, incubators and most importantly, venture capitalists. VCs provide essential funding for start-ups, but they also offer something else that’s just as important: access to their networks. These networks can include other investors, customers, partners, and even employees, which will further fuel the economy of the regional ecosystem.
Pros and Cons of Venture Capital
Like any other form of investment, venture capital is not without its risks. Some of the most common risks associated with VC funding include: The company may not be able to achieve profitability – this can lead to the business going out of business and investors losing their money. The company may not be able to execute its plans – If the company is unable to execute its business plan successfully, the venture capital firm will not see a return on investment. The company may not be able to raise additional capital – If the company is unable to secure additional funding from other sources, it may have to shut down.
Nonetheless, Venture Capital plays a key role in the entrepreneurial ecosystem because it can provide seed funding and mentorship for entrepreneurs. Venture Capital allows entrepreneurs to spend more time developing their company and less time worrying about funding.
VCs can also be beneficial for local economies. They provide jobs and often fuel an “ecosystem” of other supporting jobs around them – for example, law firms, accountants, advisors, and marketing firms.
As you can see, venture capital has had a significant impact on economies and entrepreneurial ecosystems around the world. While there are risks associated with investing in VC-funded companies, the potential rewards can be significant.