Venture capital is a type of cash provided by investors or venture capital firms to new and upcoming businesses. It is generally in the form of cash, in exchange for shares in the invested company. A person dealing with this sort of an investment is known as, ‘a venture capitalist’. A venture capital fund is the money of a third party investor given to enterprises that are considered as high risk investment for standard capital markets, especially for bank loans. The capital investment primarily comes from investment banks, financial institutions and wealthy investors. In the past, a boom in the Internet related businesses had seen a sharp increase in venture capitalists investing in online enterprises. But due to frequent market fluctuations, the investors began to refrain from such types of risky endeavors.

Nowadays the global economy is on a steep rise, and the world has become a much smaller place due to the ever-evolving World Wide Web. Venture capital investors taking an opportunity out of this growth pattern have begun investing in online companies yet again. However, this investment is much of the time focused towards those companies, which are product based. The service-based entrepreneurs have been given a backseat. It is a common belief among the venture capitalists community that, investment in a product based company would yield better results. The services based companies on the other hand involve much less risks, and are much safer to invest in. The only drawback according to the investors is that, the return on investment is unsatisfactory.

Regardless of the type of companies, there has been an incredibly sustained yet an unprecedented rise in the capital inflow from the venture capital firms. These funds are being pumped especially into the seeding stage or the initial stages of Internet companies. In spite of the fact that these companies might take up to 3 years to yield any result on investment, still venture capitalists for such firms are not difficult to obtain.

The only factor that worries the investors is that there is a shortage of talent, which would enable evaluation, investment and participation in the management of the concerned company. Otherwise, funds availability is not a trouble at all. Due to this, often the venture capitalists play an active role in the management and decision making of the company that they are funding. This sometimes creates a sour environment between the entrepreneur and the investor.

For quite some time, Silicon Valley has been the shrine for investors to play their roles and redeem millions in returns. A study suggests that billions of dollars have been funneled into establishing companies at Silicon Valley, and the return on investments have been through the roof. These days, just the word ‘Internet’ opens the way for a flood of cash from the anxious investors, just waiting to dive in the online abyss.

In the first quarter of 2007, venture capitalists invested a staggering $7.1 billion in 778 deals. In January’07, a Boulder based social networking site received $15 million in venture capital funding. A Louisville based blog provider website received $3.3 million dollars in venture capital investment.

Now the Internet has become the biggest moneymaking machine in the world. Be it entrepreneurs, investors or advisors, they are raking in big returns on their investments in record time with this concept and this trend will only exemplify the enormous potential for venture capital investors by investing in online companies.

This entry was posted on Thursday, April 3rd, 2008 at 7:46 am and is filed under Venture Capital News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.