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Venture Capital
Venture capital, also popularly known as risk capital, is money that the shareholders bring to a company as equity. There is also the possibility of equity-like financing. This is a mixed form of equity and debt capital, whereby the lenders have no voting rights in contrast to the real shareholders (mezzanine capital).
Venture capital (risk capital) supports young and technology-oriented companies (start-ups) in the start-up phase. In this case one speaks of seed capital. But it can also be a financing concept for an already existing growth company.
Venture capital is not traded on the stock exchange and is therefore not on the regulated capital market. It is therefore part of the private equity capital with which companies participate in companies in the form of shares and thus also in their success. In the case of a company that is already listed, the investor remains a minority shareholder with a stake of less than 50%,
Risk capital is usually provided interest-free. The investor achieves a profit through an increase in the value of the company.
Through its investor, the company has a partner with experience in management at its side and can therefore positively influence company growth.
As a rule, the investor withdraws after 2-5 years and offers his shares to the company for buyback. If the company does not want this, it sells its shares on the stock exchange.
This exit is called an exit and takes the following forms:
- Initial Public Offering (IPO): The company is listed on the stock exchange and sells its shares in the market.
- Trade Sale: A company takes over the young company
- Secondary Sale: The venture capitalist`s block of shares is sold to a third party.
- Company buy back: The shares of the venture capitalist are reacquired by the entrepreneur.
- Liquidation: If the company cannot survive on the market, it must be liquidated.
The investor bears the high risk of the young entrepreneur, but can expect a return of 15% - 25%.
In the investment period 1980 - 2003, an average return of 10% was proven in a scientific study of venture capital funds in Europe. Due to the dot-com bubble and the resulting euphoria on the growth stock exchanges in 2000, returns of up to 20% were possible for funds founded after 1989. With an average holding period of 7 years, the investment risk in a venture capital fund is reduced.
