VC Full Form

VC stands for Venture Capitalist. Venture capital (VC) is a type of private equity investment offered by venture capital firms to start-ups, early-stage, and developing businesses that show significant growth opportunities. In order to provide investment in the company, a VC seeks the equity or a share in the company in exchange for it. They take on the danger of funding high-risk start-ups with the expectation of seeing some of the companies succeed. VC investments have a high failure rate because there is high uncertainty about the success of a start-up.

A Venture Capitalist offers his/her funding to the company after a round known as the seed-funding round. These financing companies find opportunities to make their profits initially by buying the equity shares of a company or a start-up and after getting the desired amount of profit they exit the plan. Similar to selling shares to the public by IPO, or by selling the shares to another financing company or having some kind of merger. The main aim of a VC is to make profits from new emerging companies.

History of Venture Capitalists

The venture capitalist business in the earlier stage was started before World War II when big people or businessmen or companies like JP Morgan, the Whitney’s, the Rockefellers, etc. who invested in emerging companies. The Rockefeller company in 1938, helped the growth of Douglas Aircraft and Eastern Airlines.

In 1916, the Wallenberg family started a company named Investor AB, that focused on putting their investment in new companies. They successfully invested in companies like ABB, Atlas Corp, etc.

The true foundation of Venture Capitalist Business was started in 1945 after the emergence of the American Research and Development Corporation (ARDC) founded by Georges Doriot and others and J.H. Whitney and company. Georges Doriot is also known as the father of venture capitalism.

In 1958, the Small Business Investment Act was passed by the American government, which is said to be the first step towards a professional venture capital industry. It allowed the Small Business Administration to license small business investment companies to give funding to emerging start-ups for their growth. And it also provided tax breaks that led to the rise of private equity firms.

During the 1970s and 80s, the success of previously formed companies gave confidence to people to make more VC companies. Which led to an increase in the number of VC firms during these years. However, by the end of the 1980s, the returns decreased sharply due to an excessive number of firms and inexperienced VC managers. This also led to the crash of NASDAQ during march 2000. And many VCs collapsed. However, slowly the market and the VC industry recovered.

Types of VC

Venture capitalists are classified mainly based on their way of investing, funds, and strategies.

The main types of VCs are Angel Investors, Financial VCs and Strategic VCs. However, they also differ by the business situation (investing in developed companies or disrupted companies), Some invest only in some particular industries, some invest locally while some invest globally and some may sell their equity taken by investment fast while some may wait for larger profit or for a larger time.

Financing Stages of a VC

There are six stages of funding in a VC firm.

• Seed Funding: This is the earliest funding given by any investor based on the idea of the business. They are often given by Angel Investors.

• Start-up: When any company is in its start-up stage it needs funds for marketing and other needs. Which is given by the investors.

• Growth (Series A): This is the early time of manufacturing and sales funds. Series A is the first round of Investing in any company. Further series can be made as Series B, C or D. The real entry of a VC comes from this stage.

• Second Round: Here the working capital is provided as an investment when the company is selling its products but not taking much profit initially. This is also called Series B.

• Expansion: The financing has been done during the expansion stage of a company.

• Exit: After the expansion of companies, some VCs exit by selling their shares in the market. And during this time some other VCs looking for profit come and buy the shares of the company.

Conclusion

VC stands for Venture Capitalist. Venture capitalists are organizations or companies that provide funds to start-ups, or companies that are looking for finances by selling their equity to the VC. The main objective of a VC is to make a profit by investing. VC business started before World War II when big businessmen and families invested in small start-ups. And the real VC industry started after the emergence of ARDC founded by Georges Doriot, who is also known as the father of venture capitalists. Every VC has its way and strategy of investing which differentiates between them. And a VC usually invests in 6 stages. Where the 6th stage is the exit of seed funding VC and the entry of New VC.