* Lecture Outline * Venture Capital, Private Equity and Alternative Asset Classes * The Venture Capital Cycle * The Capital Gap - Why Venture Capital is Needed? * Overview of the Venture Capital Industry * Venture Capital, Private Equity, and Alternative Asset Classes * Venture Capital, Private Equity and Alternative Asset Classes * The purpose of venture capital is to provide capital to new, young and growing ventures. * New ventures posses characteristics that make it extremely difficult to attract financing. * Therefore their financing can not take place in mainstream investment markets. * Thus they are considered an “Alternative Asset Class” * What are Alternative Asset Classes? * Traditional Assets * Publicly Traded Shares * Bonds (fixed income) * Foreign exchanges * Commodities * Real Estate * Alternative Assets?
Australian Investment Grade Notes and Coins:
18% annual return from 2002-2004 * What are Alternative Asset Classes * Investments that * Have a limited investment history * Have clearly differentiated features from traditional asset classes (e.g. liquidity) * Requires specialist skills to manage * These features make them less common in investment portfolios. E.g. Art, Films, Notes and Coins, Ostriches etc. * Venture Capital and Private Equity Funds are some of the most common alternative investments vehicles available to investors in the global marketplace. * What is Venture Capital/Private Equity? * Venture capital provides finance for start-up firms that require substantial capital to expand and can not usually access it from conventional sources. * Venture capital is a sub-class of private equity * Private Equity (non-venture capital) can be used to fund * Troubled and distressed firms who also encounter difficulty in raising capital for restructuring. * Buy-outs of large, stable, mature but underperforming firms. * In general Private Equity and Venture Capital funds invest in high-risk high-reward firms. * What is Venture Capital/Private Equity? * Private equity investors do not only use their own funds. They raise the bulk of their funds from financial institutions and high net worth individuals * Pension Funds and University Endowments (in the US) are the most common sources of Funds. * How big are these Endowments in Australia? * Asset Allocation to Alternative Assets * Why Invest in Private Equity? * What is the Course about? * The Venture Capital Cycle * The Venture Capital Cycle * Entrepreneurs have many ideas that require substantial capital to implement but lack the funds * Usually such entrepreneurial projects lack tangible assets, expect several years of negative earnings and have uncertain prospects. * As a result it is difficult to attract funding to these projects * The Venture Capital Cycle * Venture Capital Funds are one-type of solution to the funding problems of these firms. * The Venture Capital Cycle - The Roles of Venture Investors * Maintaining Relationships with Investors * Mainly pension funds, university endowments and rich individuals * Venture capitalist ‘raise a fund’ on a periodic basis (every 3-5 years) * Funds are structure as “Limited Partnerships” and last for about 10 years * Eventually funds are returned to investors and a new fund is raised * The Venture Capital Cycle
The Role of Venture Investors * Review of Proposed Investments * Hundreds of proposals are received * Few are selected after intense scrutiny * Acceptance is often conditional upon approval of a syndication partner. * Monitoring Current Investments * Venture capitalists intensely monitors management, sometimes through representation on the board * Funds are dispersed in stages * Funding is in