Venture Capital and IdeasBank

What is Venture Capital and how does it tie in with IdeasBank?

The modern concept of Venture Capital was developed in the United States. It is a mechanism for funding development of new commercial enterprises seen to have an appreciable element of set-up risk. Such enterprises are usually based on new concepts or employ novel methods.

It has been said that only one in four patents covering improvements to existing techniques succeeds commercially, and only 1 in 40 of patents covering new basic ideas will successfully make money.

A Venture Capital Fund is one form of Investment Fund. Most investment funds attract capital from public and/or private investors and aim to balance reasonable safety (low risk of failure of enterprises funded) with acceptable returns. Returns may be made through dividends or capital gains (eg through improvement of stock or share values), and, adjusted for local inflation rates and trading circumstances, typically have returns of around 5-10 %.

Venture Capital funds are typically invested in more risky enterprises with potentially higher rates of return. Funds are spread over a number of ventures, some of which may come spectacularly good, while others will fail. When the average return from such ventures is better than that from a more conservative investment vehicle, the venture-capital approach is succeeding.

Returns from individual venture-capital investments are also expected to be delayed (perhaps by 3-5 years) compared to conventional investments, as the enterprises involved need to work through significant development cycles. Again, if returns are still attractive when averaged over the years for a permanent venture-capital fund, this is no obstacle to a longer-term investment.

So-called Start-Up Companies or Startups are typically risky ventures which may be funded by venture capital, but are often privately or personally funded by the developers.

Early Venture Capital funds are at the most cutting edge of the process. Typically such funds expect a 50% share of enterprises which they fund.

Typically, Venture and Early Venture Capitalists expect to be approached by inventors and entrepreneurs armed with bright ideas and seeking funds. To be successful, the Capital Funds need to contain good Evaluation Teams to assess the approaches against scientific, technical, commercial, and social criteria.

For the last reason, Venture Capital Funds are in an ideal position to take up IdeasBank Memons on their own initiative, without waiting for approaches from individual fund-seekers, and to make their own development arrangements as the intellectual-property holder.