Venture Capital Law
Venture capital is a form of private equity typically used to finance high-risk high-return projects, such as early-stage companies in emerging technology fields. The venture capital industry arose in parallel to the venture start up industry and has become an important source of finance for new and developing start-up companies.
The venture capital industry functions by matching venture capitalists, who have a wealth of industry knowledge and an extensive network than can help entrepreneurs grow their business, with venture businesses looking to raise money. Venture capitalists working in venture capital firms invest in the equity of early-stage companies that meet their investment criteria in exchange for equity ownership and venture capital. These venture capitalists serve as guides, supporters, and mentors to their portfolio companies, who may initially be too preoccupied with operations to seek such guidance. Venture capitalist firms also invest in the debt of young private companies or provide loans to fledgling businesses that are unable to secure funding from banks or other public sources.
There are several major types of venture capital entities, including:
1) Mutual funds/hedge funds - these venture capitalists manage larger amounts than individuals and tend to focus on later-stage investments in fast-growing companies that need follow-on funding.
2) Angel investors - these venture capitalists invest in early-stage companies with small amounts of capital (less than $1 million), often investing their own money.
3) Accelerators - venture capitalists who act more like mentors or consultants to the venture business, providing advice on topics such as recruiting, marketing and overall management while not making direct investments.
4) Micro venture capital firms - these venture capitalists typically invest under $100,000 and focus on micro-cap companies.
5) University venture funds/foundations - venture capitalists associated with a university who typically provide venture funding for spinoff companies founded by faculty and students of the associated institution.
For more information, contact Xu Law Groups’s venture capital lawyers today.