Venture Capital Funds
Candlefocus EditorVenture capital funds are often used to provide seed funding for young companies looking to grow quickly. This seed money helps the firm reach a rapid level of growth and enables them to compete with larger, more established companies. Such companies often produce high-tech products, target emerging markets, or have novel business models, and are taking advantage of new opportunities afforded by the market or technological advancements.
In return for the risk of investing in high-growth firms, venture capital funds often take an ownership stake in the companies they invest in. When the venture capital fund makes a successful investment, investors in the fund will earn a return in the form of dividends, management fees, stock sales, or equity appreciation if a portfolio company is acquired or goes public.
Investors in venture capital funds should understand that they are taking a high risk bet, and should only invest if they are able to stomach losses and long investment horizons. Living with high levels of uncertainty and not over-emphasizing short-term performance are essential to investing in venture capital funds. Risk-tolerant investors should consider venture capital funds as part of their portfolio, if they are seeking to invest in a high-growth, innovative opportunity.