chapter  6
34 Pages

Modes of entrepreneurial finance

As we noted in Chapter 5, venture capital represents a combination of capital and knowhow provided by institutional investors to entrepreneurial firms aimed at accelerating their development and exploiting available market opportunities. Venture capital is risk-equity investing in which venture capitalists aim to achieve long-term, above-average returns across different business cycles. Venture capital can be distinguished from other types of financing in several ways. For one, it is equity oriented and illiquid. Venture capitalists make money from growth in the value of a business rather than through a prenegotiated return with preset timing for the repayment of capital. Also implicit in the definition of venture capital is commitment to contribute more than capital to the process of working with a business. The most important characteristic of venture capital is exit orientation.