Framework Conditions for Venture Capital: Results of the Literature Review

Abstract

Venture capital funds raise capital to invest in new business projects. These funds act as agents between the entrepreneurs who face search costs in locating funding, and uninformed institutional and individual investors. While venture capital comprises a relatively small percentage of capital market activities in the US, it provides an important source of funding for small businesses and offers the potential for high returns for investors. The industry has been responsible for helping to establish numerous successful enterprises. Among them are Apple Computer, Intel, Federal Express, Microsoft, and Lotus Development. Venture capitalists, unlike many other equity market participants, take active roles within their portfolio firms. In addition to the deal’s origination, screening, evaluation, and structuring, they are responsible for monitoring the venture’s post-investment activities on behalf of the investors in their managed funds. A venture capitalist often takes some form of a non executive managerial position within the portfolio company.