Venture Capital

Venture capital has various definitions but it is most commonly defined as the investments performed by institutional investors for meeting the necessities of vision holder, dynamic and innovative entrepreneurs who are productive and have a high potential of growth, but at the same time face difficulties in reaching financial sources required for the accomplishment of their goals. The stages of realized financial partnerships are classified as follows; seed money, set-up, early stage, development, bridge (mezzanine financing) and management purchase.

Venture Capital Funds and Private Equity Funds are generally interrelated and a clear distinction amongst the two is not possible. The main difference which ascribes venture capital from private equity is that private equity funds mostly invest in companies which have an established and successful background and which are not in the form of public companies. Venture capital funds on the other hand invest in smaller but riskier companies expecting a higher return. They invest in projects which are at seed and/or start-up stages.

These funds are generally set-up with two sides of investors; the manager partners, called general partners, who provide the initial capital and aspire to manage the fund and the limited partners who provide the funds to this structure afterwards. These fund supplying partners are generally institutional organizations such as retirement funds, banks, insurance companies and the also the public. These funds are generally supplied within a time span of 10-15 years. Proceeds of the investment are provided by exitting the investment after a desired specific period (generally 5-7 years on average). Funds can be invested by purchasing minority or majority shares. Magnitudes of the fund and investment amounts vary. Investments should be made within the strategies and criteria specified by the fund after it has been set-up.

Apart from supplying finance, venture capital funds aim to provide contribution to the growth of the company by offering strategic support. As a result these funds are closely interested with the management and progress of these companies with their professional managers. These funds have a saying in the company's board of directors in which they invest to be able to add a new perspective and strategy to the company and also to utilize their prior experiences for their benefits.