What is Venture Capital?
Venture Capital is usually provided to early stage companies and start-up companies that exhibit signs of high-potential return or growth for investors. These types of investments generally carry much higher risk than many other investments. Venture Capital companies make their money by owning equity in the companies they invest in. Venture Capital is often attractive to new companies with limited operational experience, are unable to secure bank financing, raise capital in the public markets or successfully complete a debt offering.
Venture Capital is an important part of the U.S. economy. Venture Capital is strongly associated with job creation, accounting for almost 2% of U.S. GDP. According to the National Venture Capital Association, 11% of all private sector jobs come from venture backed companies and venture backed revenue accounts for 21% of U.S. GDP.
At CoLegacy we employ Venture Capital in a very specific way in which we use it only to obtain “proof of concept” for our more substantial Private Equity investments. By employing this method we find that the risk held in our Private Equity funds is significantly lower. As a general rule we use a very limited amount of available capital in Venture Capital. Although the rewards in Venture Capital can be tremendous we find that the risks in most cases outweigh the rewards for us and our clients.