What this module covers
Venture capital is the asset class in which a few investments produce very large returns and most produce little or nothing. This module describes what venture capital is, the power-law pattern of its outcomes, how venture funds are structured, the Canadian venture market, the difference between investing directly and through a fund, the spread between managers, and the difference between realized and unrealized returns. It closes with what the class requires of the capital committed to it.
- What venture capital is
- The power law
- How venture funds work
- Venture capital in Canada
- Direct investing and fund investing
- The spread between managers
- Realized and unrealized returns
- What the asset class requires
What venture capital is
Venture capital is equity investment in early-stage companies. The companies often have little revenue, and sometimes none. What they have is an idea, a team, and perhaps a prototype or a first set of customers. They need capital to build the business.
In exchange for that capital, and for the risk that comes with it, the investor receives equity. If the company succeeds, the equity can become worth many times what was paid for it. If the company fails, the equity is worth nothing.
Module 05 places venture capital among the private equity strategies. This module looks at it on its own.