Good afternoon to everyone who has gathered in front of the monitor screens and prepared for the next portion of news from the world of money making! As you remember, I wrote about how risky business is a game on this financial market like Forex. Today I want to devote my article to an even more risky event, namely venture investments. If you are busy looking for ways to diversify your funds, then this will be useful and interesting to you. Therefore, I propose to find out right now what venture investments are, how to work with them and how not to lose your capital.

What is venture investing

If we turn to the origins and delve into the roots of the origin of the term "venture", then we learn that translated from English this means nothing more than risk or undertaking involving risk. Based on this, we can draw a completely logical and logical conclusion that venture investment is an investment associated with high risks.

It seems to me that for a better understanding of this term it would be very appropriate to compare it with a loan. You and I know that the latter is issued to companies without any specific guarantees, for the most part, simply under "honestly". As a rule, young enterprises that are just starting their business activities act as investment objects.

How do ventures work?

It is thanks to venture investments that projects are realized that literally explode the markets. For clarity, I suggest you break down this process in the form of an algorithm.

U young company for now there are not enough funds, but there are already serious and very ambitious goals, to achieve which it needs investment. To obtain the missing resources, she attracts investors to her project.

Those businessmen who are interested in the proposal of the newly formed company allocate the amount necessary to finance the project from own funds, and in return they receive a share in the company. In other words, investors buy their place in the management of the company, become owners of its shares.

After this, events can develop in two directions:

Due to the fact that this area of ​​investment is highly risky, many venture investors decide to engage in project management on their own, relying on their experience and acquired business skills. Popularly, such active investors are called "business angels".

How does venture investing work?

So that you understand the principle of venture investment, I suggest you decide on main distinctive features , which are typical for this financial instrument.

Quite a high barrier to entry

Most often, investors in the venture market are more than wealthy individuals. This is due, first of all, to the fact that this industry requires injections ranging from 10,000 to several tens of millions of US dollars.
Therefore, you, as a novice investor with modest capital, will have to scour many sites on the Internet, watch hundreds of advertisements, read a bunch of forums, before you finally find a truly an interesting and accessible project for you, requiring investment. If this option does not suit you, then I advise you to contact an institute or that provides such a wonderful service as the opportunity co-investment.

This will allow fund managers to accumulate the contributions of several small investors in such a way as to subsequently invest the collected capital in a strong and promising project. The only disadvantage of this option, I believe, is that you will have to completely trust the competence and experience of the fund manager and give up the opportunity to independently make decisions regarding which project to allocate your funds to.

Long-term investment

When investing your money in venture projects, you must understand that the conditions of this type of investment will not allow you to return your funds at any time when you wish. This is due to the fact that the entire amount invested in the project is immediately absorbed by the company, and therefore you will be able to return the money spent only when the project begins to generate income. It often takes a while until profits are made and the investment can be returned. some years.

Lack of control

If we compare venture investors with strategic partners, one immediately noticeable difference is the lack of control over the shareholding of the former. That is, These subjects are practically not interested in managing the company itself, they assume exclusively financial risks, shifting all other worries onto the shoulders of top managers.
Of course, in an effort to protect their money, some venture investors still sit on the company’s board of directors and personally monitor the company’s affairs. Which, in principle, in my opinion, is quite logical. It is unlikely that any of you will agree to part with huge sums of money and not worry about the fact that at any moment all these funds can simply “burn out”.

Impossibility of guaranteeing the profitability of the project

Throughout the life of the venture loan, you, as the lender, may not receive a single penny of return from the project, and ultimately sell your stake in the company for tens of millions of dollars. The real profit margins of most startups can only be discussed after their shares are publicly listed on stock exchanges. After this, based on the investment attractiveness of the project, the price of its shares is determined, and along with it the amount that you can earn for the sale of a stake in the company, being its direct creditor.

Stages of providing venture investments

Since any financial investment is a deliberate and balanced undertaking, investors choose very carefully where and how to allocate their funds. It is for this reason that it is so popular phased investment model– the most popular strategy for investing in high-tech projects among venture investors. Its essence lies in strict definition of time frames– stages of development of the financed event, weighing and comparing these stages with the key stages of development of the company as a whole, which are previously agreed upon with investors and carried out in the process of their implementation during financing.

Each stage has its own individual investment amounts necessary to achieve your goals. Total stages 6, and I invite you to talk about each of them in more detail:

1. On pre-sowing stage a certain amount of funds (very modest) is allocated for a supposedly profitable idea for a clear justification and elaboration of the general concept, conducting marketing research and developing a direct product.
2. Seed stage involves financing more in-depth and thorough research and releasing trial batches of the product.
3. First stage. It is at this stage that the direct development of the business and release of the first commercial batch product.
4. On second stage, if at the previous stages all raised funds have already been exhausted, there is a repeated cash injection aimed at increase in production turnover and creating a certain food supply.
5. Only on third stage is finally starting receipt of profit. It is this stage that is characterized by continuous and rapid development of the project as a whole and significant increasing sales rates. Only if both of these requirements are met can a company qualify for the new investments needed to improve products and increase production volumes.
6. Late and final stage of development– this is immediate bringing the company to stock exchange . At this stage, investments are necessary for various purposes and are “rewarded” after specific proposals for the acquisition or sale of the company’s securities are received on the stock exchange. It is at this stage that investments become largest in volume, but at the same time the risk of losses is minimized.

A little about real successes

Let's take a short break and let's rest. To inspire you to invest in the world of venture projects, I want to tell you a couple real stories, about how investments in once unknown small companies gave the world the most famous and popular brands. So, let's find out how venture capital investments unraveled whatsapp And Twitter.

Where can an investor look for investment projects?

If I managed to convince you of the attractiveness of venture investing, then it’s time to talk about where a beginner can find a project to invest in? I will list you the most available methods search investment objects that I know about:

Summary

In conclusion, I cannot help but say once again that such investment is associated with huge risks, and therefore I ask you again carefully weigh the pros and cons such a way to earn money. Remember that making such decisions requires you to understand the legal side of transactions and consult with specialists who have been working in this field for many years. You must clearly understand that only a tenth of investors recover their costs and make a profit. But even if this doesn’t scare you, then my advice to you is to invest in several projects and diversify your risks. Meet me here, see you later, my dear readers and novice investors!

If you find an error in the text, please select a piece of text and click Ctrl+Enter. Thanks for helping my blog get better!

• • When the plans materialized

Definition of venture capital investment

Venture investment is financial investments to any company at the stage of its formation and growth. Or, more simply put, it is financing promising startups. The term “venture” itself (derived from the English “venture” and meaning “risky undertaking”) implies investing money in innovative business, unknown to anyone and therefore not having access to the main stock markets.

An investor who is willing to risk money and spend money in favor of a new company receives an ownership stake in this company in exchange for the money invested. Today's leading giants with billions of dollars in turnover, such as Intel, Apple, Compaq (today's HP) and many others, at one time managed to rise and develop precisely thanks to venture investments made by far-sighted and successful investors.

In venture investing, the risks for the investor and the entrepreneur are almost equal

Attractiveness and risks of venture investment

Venture investment is capital that has a high risk of loss; it is a bet on the “dark horse” of business. Risks can be very diverse, ranging from incorrect distribution of cash flows to miscalculations in forecasts of possible profits. Therefore, as a rule, venture capital is invested in shares or shares in which the degree of possible risk is compensated for success by a very high share of profit. The main sources of venture investment are mutual funds investment funds, venture capital firms or private investors (business angels).

Venture capital investment in a company allows investors to be closely connected with the work process of the enterprise.

VCs can provide expertise and assist in planning, as well as provide advice during meetings. Thus, in addition to the monetary part, business angels often contribute their time, connections and valuable experience to the process of establishing a sponsored company.

However, the sole purpose of all venture capital investments is to get the maximum return on the money invested, hence most investors look for businesses and companies that have a realistic chance of financial growth.

Ideal Companies for Venture Capital Investments

Enterprises that are attractive to venture capital investments must have high growth potential. The current status of the company is not so relevant (it happens that there are investors even for a project that exists at the initial stage of its development, the so-called “seed investments”), but rather the prospects for its development.

Most venture capital funds select companies that can offer significant turnover in the next five years. Thus, there are general beacons of attractiveness for venture capital investment, which include:

• high growth prospects;
• an ambitious team;
• experienced management;
• the ability to translate plans into reality.

Venture programs and investments in startups

Venture investment process

The period of financial investment in a venture project usually lasts from three to seven years. Venture investments to introduce innovations into mature businesses, where production growth occurs faster, will lead to a faster return on profits. In enterprises where the development of a business model requires serious time, naturally longer periods of financial investment will be required before the desired profit is realized.

Most venture capital deals can take anywhere from a month to a year to close. A typical period of three to six months is considered normal. There are also quick offers, but these are exceptions.

The speed of funding largely depends on the type of information that was provided to venture investors for consideration.

The process of acquiring venture capital investment begins with evaluating the business plan. (See How to compose). The main aspects that, in the opinion of potential investors, can motivate risky financial investments in a particular enterprise are as follows:

• viability of the product or service;
• potential for sustainable growth of the company;
• effective team management for the effective operation of the company;
• the ratio of risk and expected profit;
• justification of venture investment and investment criteria.

The assessment and selection of a company is accompanied by the structuring of venture investments. Typically, venture investments are made in equity capital. Investors receive a share in the enterprise commensurate with the costs, and the shares of existing shareholders are reduced. At the same time, all money goes exclusively to the development of production.

There are many types of investment, differing in terms, industries, and properties of capital. One type of investment is venture financing projects(). What is special about this type of investment?

Venture investment belongs to the group of high-risk investments. The essence of these financial injections is that the money is invested in the authorized capital of developing enterprises that are engaged (or are planning to engage in) the development of high-tech projects.
Large companies that earn stable profits are not interested in investors of this kind.

Venture investment structure

As already mentioned, this type of financing is a long-term, high-risk investment. All that a potential investor is interested in are newly created small and medium-sized enterprises, whose main task is the development and implementation of new technologies. Of course, provided that these technological solutions will be in high demand in the market in the future. The investor’s goal is to receive a profit in a few years that is several times greater than the money invested in the project.

Naturally, venture financing is not available to all newly created companies. There is a fairly clear ranking of enterprises that can qualify for financing:

1. The first to go are organizations that have a ready-made idea, but do not have the funds for subsequent research work.
2. Newly created companies with ready-made technological developments, but not able to launch a trial production of the product.
3. Enterprises whose products have already been tested and are ready to release products to the market.
4. Operating enterprises with ready-made technological solutions, releasing their products to the market, but in need of financing. Cash injections are needed to expand the scope of activities, develop new technologies, and conduct additional research.

This classification does not guarantee that all companies that meet the listed data can immediately receive venture capital funding. It's not investors who are actually looking for potential partners. To receive financial investments, it is the newly developing companies that must look for an investor themselves. How does this happen? By searching through acquaintances, friends, the Internet. What the investor needs to provide: a decent business plan with a development strategy for several years ahead.

If many aspiring entrepreneurs think that with such a business plan they can go to the bank and get a loan, they are greatly mistaken (by the way). The time when such schemes worked remains in the nineties of the last century. Today, not a single bank will undertake to finance a high-risk project that does not guarantee a solid profit at the initial stage. Venture investing, while similar to bank lending, differs precisely in that the investor is willing to take a risk and invest money in a similar project.

The investment scheme is quite simple and transparent. Venture funding investment projects happens as follows:

1. A small business enterprise with an innovative project approaches a potential investor. The goal of the enterprise is to obtain financing for the development and implementation of high-tech solutions that can ensure constant demand in the market. At a minimum, such an enterprise should interest the investor not only with an innovative idea, but also with a competent business plan.
2. If the investor is interested in the proposal, the details of future cooperation are discussed. Financing can be carried out by infusion Money into the company’s share capital or in the form of lending (for a long period at a minimum interest rate). At the same stage, issues of distribution of future profits are discussed. The peculiarities of venture financing are that a potential investor is interested not only in the innovative project that must be financed. Investors pay great attention to the organization of the enterprise's work. After all, it is competent management and proper distribution of funds received that ultimately influence the work on introducing new technologies.
3. After the company takes a leading position in the market, the liquidity of shares increases, and profits increase, the time comes for income distribution. For example, an investor can simply sell his stake to the company at the end of the project (provided that they rise in price). In general, a project can be considered profitable if it is possible to obtain a profit of 20 to 50% approximately 5-7 years after the start of investment.

Types of Investors

There are two main types of investors in venture capital funding:

1. Venture funds, which are formed with the assistance of several investment funds.
2. Business angels, that is, single investors. Roughly speaking, large entrepreneurs fall into this category.

Venture funds have at their disposal accumulated (total) capital, which is distributed between investment projects. All fund members are divided into two categories:

1. Main partners who control and distribute financial flows. The share of the main partners in the venture fund is no more than 20%.
2. Limited partners who invest money directly into the fund but do not have control over the funds. Their share in the fund can reach 80%.

Venture funds, in turn, are divided into:

1. Specialized, which provide financing only in a certain industry or in a certain region (country).
2. Universal, which diversify financial investments into completely different industries.

Venture capital funds finance a wide variety of companies at different stages of their existence. Such organizations willingly invest in companies that have barely opened or in enterprises that are just planning their activities (seed investment). But preference is still given to existing companies that have a ready-made and tested project, the so-called “start-up” companies. If operating enterprise plans to expand its scope of activity and enter the market with a new offer, a venture fund will definitely finance such an undertaking.

Today on the market there are a large number of corporate funds that unite under their wing many small organizations and companies operating in the field of innovative technologies. The consolidation of diverse companies makes it possible for corporate funds to minimize possible risks by diversifying investment interests.

Now about the so-called business angels. These include large entrepreneurs or wealthy people who provide venture financing for the same small businesses and newly created companies. The difference between business angels and venture funds is that the process of receiving funds from individuals is much faster, the terms for returning money are gentle, and interest on invested capital lower than that of funds.

Risk of venture investment

Since the main point of investing is to place finances in the share capital of an organization, the most important risk can be called the possible illiquidity of shares in the future. In a word, where there is a turnover of shares, there is always a risk of shortfall in profit or direct loss.

A venture investor finances a company whose shares are not yet listed on the stock exchange. The peculiarities of venture financing are that such projects are designed for a long period, so it is almost impossible to predict the possibility of making a profit at the initial stage. It all depends on the instinct of the investor himself. Moreover, the investor often cannot withdraw the money invested in the project until the end of the contract.

The risk is also due to the fact that investments of this kind are always aimed at the development and implementation of new technologies, often quite unusual. Such projects, of course, can bring decent profits, but there is also a high probability of failure of the idea being developed.

Venture investing resembles a procedure bank lending. The only difference is that the interest in investing is much higher. But this is balanced by the fact that there are no guarantees in such investments.

Venture investing in Russia

Although it is generally accepted that the birthplace of this type of investment is America, venture financing has almost always been present in Russia. The most striking example is developments in the field of the military-industrial complex of Russia. It is thanks to venture financing that the country's military complex has reached significant heights. Naturally, the investment was carried out not with the support of private funds and individuals, but directly from the state budget.

An attempt to create venture funds in Russia was made back in 1994-1995. For a number of reasons, the development of private investment for the introduction of innovative technologies in Russia has not found the proper response. Venture financing in Russia was carried out by funds that had a majority of capital of foreign origin. Simply put, the developments successfully brought profit to Western investors, or even went abroad altogether. The reason is poor material and technical equipment and the lack of tax incentives for Russian enterprises introducing advanced technologies.

Today, the problems of venture financing in Russia lie in the wrong approach of the investors themselves. The main problem is that the Russian economy is currently not stable; it is not entirely correct to talk about projects that can be implemented in 5-7 years. In addition, funds that could invest funds require from Russian enterprises not only fresh technological solutions, but also well-established production. Simply put, to receive funds from the fund you need to show results of a finished product that has received encouragement from a wide range of buyers. With such an approach, the very idea of ​​venture investment simply loses its meaning.

However, given the presence of many people with high scientific and technical potential, one can hope that there will also be business angels who can adequately evaluate proposed business projects and promote the development of new technologies through venture financing of small businesses.

Venture investment is an investment of money in a business when it is created new company, looking promising, and money is being invested from the very beginning. For the most part, such investing is considered risky, since it is almost impossible to correctly assess in advance what kind of profit should be expected.

Investments with risk

Venture investment is investing in young entrepreneurs taking their first steps in their chosen business. The key advantage in this is getting a good share in the business, which will be a source of stable profit in the future... if, of course, the business works out. At first, the business does not yet exist, but the money has already gone into it. There is a chance that the investment will pay off, but there is also a significant chance of the opposite outcome.

A much simpler and more reliable option is to buy shares of a company that has existed for a long time, is firmly on its feet, that is, you can analyze how much money it will bring to the holder of the securities. These shares can probably be sold in the future, perhaps at a profit. On the other hand, the profit from them is less than that provided by venture investments. This is an important incentive that encourages people with the means to invest in growing businesses.

From the very beginning - total control

Venture investment is investing money in a company that is yet to open. This means that the investor invests money before the authorized capital is formed. In practice, an entrepreneur can receive money before registering as legal entity. It is obviously impossible to estimate any real parameters at this stage due to their absence. Conclusions are usually drawn on the basis of a business plan. It is this that the entrepreneur presents to the potential investor as part of a business meeting.

Of course, an investor can count on a share in the business, and in order not to be deceived, he enters into an agreement with the entrepreneur. When the company becomes successful and becomes a source of profit, payments to the investor will be made regularly in accordance with the share that he invested in the business at the beginning. However, the share does not always depend on the actual amount of money invested: it often follows from an agreement reached between the sponsor and the businessman. There are cases when the author of the project himself did not invest anything into it except the idea and effort, that is, all funding came from outside, from investors (direct venture investments).

Although such situations are infrequent, sponsors typically cover more than half of the company's total expenses, but the profit they receive rarely exceeds 50%. The reason is that the intellectual work invested in a business by an entrepreneur is valued higher than the money to start a project. Perhaps it is for this reason that venture capital investments in Russia are still not as developed as possible.

Risks and profits

When implementing a startup and attracting Russian venture investments, an entrepreneur faces minimal risk. If he fails, he will not have to return money to sponsors. However, if you lose like this one day, no one will give you a second chance. An investor, if he chooses the wrong object, completely loses everything invested.

Despite the danger of this type of investment, the volume of venture investments is only growing from year to year. The best indicators can be seen in the West and Japan, but in Russia there are trends for the better. No wonder: venture capital investment companies generate greater profits than conventional securities trading. The ability to take risks also plays a role: many people like to “walk on the edge of a knife.” When choosing a successful business, the sponsor increases the capital many times over, and this happens in a much shorter period than when investing money in a well-known, reliable company with stable shares.

Win or Lose

As statistics show, a modern fund for promoting the development of venture investments, which has invested in ten projects, remains in profit if nine are burned out and one wins. With sufficient experience, qualified analysts and financiers at your disposal, you can try to predict whether the project will be successful.

However, the classic venture investment promotion fund directs money not only to the authorized capital. You can also provide a loan to a potentially successful entrepreneur. These come with or without interest. The agreement stipulates that after some time the organization must return the funds invested in it to the investor.

Even in credit form, a venture capital fund for investing in small businesses is a risky undertaking. The newly formed company is liable only for the amount that constitutes the authorized capital. If this is less than the loan issued, and the company goes bankrupt, the investor will still not be able to get back all of the investment. The court will simply write off the difference in amounts.

You can achieve success

Nowadays, a venture investment development fund is an organization that invests money in a start-up entrepreneur. It can succeed if it has experienced analysts. Such a structure can take part in the management of the company to which the money was sent. In addition, you can become an “informal advisor” for a startup.

The work of the investor and the investee usually does not fit into the framework of the concluded agreements. Constantly interacting people pore over ideas together, improving them and thinking through how they can lead to success. It is believed that achieving such harmony is practically a guarantee that the business will “burn out.”

Promising future

If a company already exists and a businessman with money invests his resources in it, it is most profitable for him to acquire a controlling stake or at least such an amount that will allow him to become an influential person. This will allow you to vote on the board of directors and keep control over the organization's policies.

But venture investments in Russia work a little differently. By investing money in a project, an investor seeks to make money on a promising idea. The author of the startup and the investor agree among themselves on how the company will be managed in the future - perhaps they will manage it together, perhaps power will be transferred directly to the author of the idea. But there is usually no rivalry here, since there are only two parties, and they are united by the goal of expanding the business and making it as profitable as possible.

Governmental support

Agree, “venture investment fund” sounds nice, but any modern entrepreneur forced to survive in an economic crisis can only beautiful words not enough. And if the business is just about to start, and for this it is necessary to find people with money who are ready to provide their resources for just such an idea... In the last few years, the state has come to the aid of the authors of business ideas. An innovation support program was developed. Now it has become easier to “get on your feet”, and investors feel that the riskiness of venture investments has become less.

Methods of state support:

• directing money to a venture investment fund;
• organization of mass preparatory events for businessmen, allowing them to meet potential sponsors;
• subsidies, grants, tangible at the initial stage (usually amounts up to a million rubles).

How it works?

The injection of public money into venture investments is a mechanism that works without the participation of the author of the idea. In this case, the entrepreneur’s task is to interest the sponsor, and he will then take upon himself the issue of interaction with the relevant authorities. The funds' funds are controlled by private companies. There are regional organizations, but there are also those that work on a national scale.

A venture fund combines public money and funds invested by private investors. The management company decides where to direct this money and which entrepreneurs are worthy of sponsorship. True, RVC stands separately - “Russian Venture Company”. This is the only company at the moment that independently determines where to invest money, without third-party managers.

Investors and Investees

Participation in events that bring together entrepreneurs and potential sponsors, as well as the presentation of ideas for seeking grants, are important methods of attracting interest and money to the planned project.

A businessman who regularly attends a themed event has access to the following benefits:

• receives useful information at seminars;
• meets people who want to invest money in a new business;
• receives expert assessment of your idea;
• receives various assistance in organizing and preparing documents for what is planned.

But grants are the most direct and obvious option for government support for an entrepreneur. The assistance is provided free of charge, although sometimes a businessman is offered a loan on preferential terms.

Typically, cash grants are issued in amounts ranging from half a million to a million rubles. It is somewhat less common to receive 2-3 million from the government. The authority that manages public money strictly determines what it can be spent on. As a rule, this involves the purchase of equipment and patents, and the rental of production space. With a certain amount of luck, you can receive money without restrictions on the direction in which it can be used. In this case, funds are given in such a way as to cover (at least partially) the budget of the idea.

How else will the government help?

Modern government programs to support venture investment provide businessmen and their sponsors with certain indirect support. For example, officials can transfer infrastructure to a young entrepreneur free of charge or under special conditions. Usually these are offices in business parks, for which you need to pay much less than the average cost per square meter in the market.

By resorting to public venture investments in addition to private ones, the entrepreneur thereby receives benefits free of charge. Compared to loans, there is no need to repay anything. On the other hand, the state does not ask for a share in the business and will not manage the company in the future, which compares favorably with private investment. But there are also weaknesses in such a program. For example, the amounts are too small to be sufficient, and registration takes a long time due to the bureaucratic system.

Closed-end funds

If the investment is particularly risky, then it is likely to be the task of closed-end funds. These transfer money to real existing businesses. The funds are engaged in the acquisition of significant auction packages and shares in commercial companies. But they are not involved in the investment business, banking and other industries related to money.

The venture fund includes bonds and shares. At its core, it is a mutual fund, but by law it has the ability to contribute to bills of exchange the property of companies whose shares are held by the venture fund.

Project investing is associated with great risks, since the probability of project failure is high, but unlimited profitability compensates for this danger.

The fund is headed by a management company. She does not invest her own money anywhere, but organizes investors and entrepreneurs and distributes funds between them. This organizational system works in such a way that experts who make decisions in favor of a particular business are based on studying the internal “kitchen” of a potentially promising project. Work is carried out with directors, the growth of the company into which money is poured is stimulated. At the same time, a venture fund has an investment committee. His task is to defend the interests of investors. The final decision on the choice in favor of one or another business will be made by the committee.

Closed-end funds rarely last longer than a decade, but operate for at least five years. World economy evaluates such a time period as sufficient for investors to receive sufficient profit on their investment. It is assumed that within three years the fund will use all investors' funds, investing them in projects, but operates until investors receive their money, including additional returns.

Investment object

Most often, venture investments are directed to modern, young companies presenting innovative projects. On the one hand, this area is the most risky, on the other hand, it is aimed at the future, that is, success promises good benefits. Scientific experiments, research, products, services - these are the optimal areas for venture investment. Banking structures do not like innovation because of the high risk, but venture investors who transfer money for nothing literally ensure the future of the company, and through it, society.

It is not necessary to personally choose a startup that has a better chance of surviving in the market during a crisis. You can invest your money in a venture fund. The professionals managing it select the most viable and promising projects. This form is on the market financial activities has been known for a long time, and world practice shows that this is indeed the best opportunity for young entrepreneurship. Often the participants in venture funds are banking structures that themselves are not eager to work with young businesses.

Venture investments: two types

It is customary to distinguish two groups of people:

• those who invest money directly into entrepreneurship (main partners);
• investing money in the fund (limited partners).

The latter work with businesses through a contract concluded with the fund.

Not every sponsor can become a venture investor. The selection is quite tough. This is not surprising, because in the future such an investment can become a source of income. The interest is agreed upon in advance, usually about 2-2.5% yield.

Methods and risks

The main (general) partners who invest money in a startup are often the only source of financing for a risky project. But there are two ways to participate in entrepreneurship, and they are divided according to the same logic as investors. That is, you can invest money directly, or you can do it indirectly, through management company. The first path is riskier, but more profitable.

Startup is not the only direction of venture investment. You can invest in bare bones ideas if they are good enough. You need to understand: what looks beautiful on paper may fail in reality. The more experienced investors are, the less risk they accept. It is believed that risks can be minimized if you personally participate in the selected startup. The investor is engaged in a strategy for promoting the project, uses all his connections, his experience, attracts partners to advertise and interest customers in the product before it appears on the market.

What are venture investments and how do they differ from other methods of investing in business activities? Venture investing is a type of direct investment related to the financing of business projects associated with high or relatively high risks.

However, this does not mean at all that a financier goes into the venture investment business relying solely on intuition and luck. Venture investments require accurate calculations and a deep understanding of the processes associated with the mechanism of such investments, as well as the “rules of the game” in venture markets.

The main mechanisms ensuring success in venture markets are:

• objective assessment of companies selected for investment;
• development of a detailed step-by-step financing strategy;
• investor participation in the process of managing the recipient company;
• a reasonable ratio of venture financing to other types of investment in a developing business.

Features of venture investments

Venture investments have whole line features that distinguish them from other types of direct investment.

1. First of all, venture investment is always associated with the so-called “startup” - a business in search of a reproducible and scalable model for the development of business activity. This happens because such a business is based on a promising idea that, if successful, can bring maximum profit.
2. Another feature is that a venture investor usually invests in innovations that are highly scalable and fast-paced from scratch. Successful venture financing of innovative projects turns out to be the most profitable.
3. Due to the increased risks associated with venture financing, the investor strives for maximum expertise of the business or its segment in which he invests money. The greatest importance here is the activity of professional experts, which allows optimizing the development of a business project at the most risky stages of its implementation.
4. Venture investments implement strictly defined tasks and goals, i.e. have a clear target character. Among the areas that venture investment follows are hypotheses for the development of the market for certain commercial products, effective scaling, development of new markets, etc.

These features of venture investment require the constant participation of the financier in the work of the recipient company. They also put forward demands on the level of his competence. As a rule, the greatest success in venture capital is achieved by an investor who invests money in strictly defined sectors of the economy.

Venture investment management

Corporate management of venture financing is also characterized by its specifics. All important steps, including the liquidation of companies associated with the venture business, are taken by the boards of directors of the companies. Therefore, to protect their interests, venture capitalists need to sit on boards of directors. The situation is complicated by the fact that investors do not have a majority there at first.

The contradiction is resolved when several seats are obtained by independent directors who are elected by consensus. Venture investments allow this to be carried out due to the high risks that require relying heavily on the authority, knowledge and connections of the financier. Practice shows that any such director usually takes the investor’s side in most disputes that arise.

If it is impossible to resolve the conflict through legal means, it becomes necessary to take measures legal regulation. They are based both on the domestic legislation of the country and on concluded international agreements related to direct and venture financing.

Venture investment mechanisms

Venture investing in Russia, as well as abroad, includes two main sectors:

• venture funds;
• informal sector.

Venture funds are large, ramified organizations that combine funds from at least several venture projects. Compared to other private equity funds, they have longer investment periods. financial resources, since venture capital investment in startups rarely brings quick returns.

The organizational and legal structure of venture funds can be presented:

• limited partnership agreement (investors act as limited partners),
• company or limited liability partnership where investors are the main partners.

The informal venture capital sector is largely represented by individual investors who invest their personal savings in small companies at the growth stage. Such a venture investor is called a “business angel”. Among the “business angels”, mature professionals with a high level of education in the field of management, economics, as well as exact, natural and applied sciences predominate.

The vast majority of them have extensive experience in independent investment activities or solid work experience as consultants, accountants, lawyers and managers large companies. Due to the shortage of such specialists, venture capital investment in Russia is carried out largely from abroad.

The meaning and prospects of venture investments

The benefit of venture (risky) investments is that, by providing finance to companies that do not have other funds, they receive a share of shares in the total package, which at a certain stage of business development the investor will be able to sell for many times more expensive. Venture investing can produce colossal returns or end in equally colossal losses. But in general, it was the venture business that played a leading role in the current economic well-being of developed countries.

In 1990-1995, in the United States alone, about $130 billion was invested in the development of promising innovations. Investing these funds is usually done with the expectation that the market value will increase over a long period of time. The peculiarities of venture financing also lie in the fact that the money is not “in stockings” and does not put pressure on the budget, but works for production and technological development.

The Russian Venture Investment Association generally assesses the prospects for the development of venture business in our country with cautious optimism. Association experts note the need of Russian business for such investments, i.e. the presence of demand generating supply. At the same time, they note the presence of a number of factors that complicate venture financing of innovative projects. Among them:

• general economic crisis;
• complex geopolitical situation;
• insufficient qualifications of local management personnel;
• imperfect legislation and the associated lack of financial transparency of transactions.

Loan or venture capital?

Venture financing of innovative projects is less common than obtaining loans from banks. However, in the case of innovative start-ups, attracting venture capital is much preferable to using borrowed funds.

Of course, in both cases the financier seeks to return his money with interest, i.e. provide yourself with a profit that justifies the risk and effort expended. Moreover, venture investors, who risk much more than lenders, rightly demand a much larger percentage from the recipient when concluding agreements.

At the same time, venture investment has significant advantages over credit loans in terms of benefits for young businesses.

1. The relatively small percentage required by the lender is due to the fact that he needs a strong guarantee of payment on time of the amount specified in the contract. Therefore, being denied a loan is very high. It may take too much time to find an “accommodating” lender, which also costs money. Venture investors, on the contrary, take a conscious risk, and therefore are more willing to provide significant amounts, although they strive to carefully assess the prospects of the financed business before doing so.
2. Creditors oblige the debtor to pay the borrowed amount and interest due by law. Defaulter by credit debts forced to pay fines and may even be deprived of property or brought to criminal liability. The obligations to the venture investor are much less stringent. Therefore, in case the seemingly promising business fails, the recipient of venture capital investments is much less likely to go completely bankrupt.
3. In case of failures in business, creditors do nothing to help their client, because... are in no way interested in developing his business. Any interest credit organization- just receive the amount of money specified in the contract. On the contrary, venture investors, being not just lenders, but also temporary co-owners of the company, are interested in its development as a means of further increasing their profits.

All this makes venture financing a much less risky undertaking for the recipient than lending. After all, most of the risks in the first case are borne by the investor.

Venture Funding Strategies

There are different types of startup venture capital packages. Basically, in this case we are talking about ordinary and preferred shares. The difference between the latter and ordinary shares is that they bring owners a certain fixed percentage of income instead of dividends that change due to stock market fluctuations.

Only at the next stages of business development does a competent financial policy include lending. Those. loans come after venture capital, since in the case of lending, the financier risks much less than with venture investments, and the “back on his feet” recipient is quite capable of regularly paying off loans without problems for himself and the lender.

The most popular strategy for developing an innovative business fraught with risks is associated with phased financing. In this case, each stage of financing is within a fairly strict time frame, correlated with the overall planning of the business activity of the recipient company.

The importance of objective assessment

Venture capitalists are faced with the challenge of directing capital to the needs of startup companies that are having difficulty obtaining financing from other sources. At the same time, the main problem of such companies is the significant uncertainty of its prospects in terms of the success of the enterprise. Estimates of the profitability of a business in the event of its possible success are no less approximate.

The situation is complicated by the existing information asymmetry between company executives and financiers. The management of the company, more knowledgeable in the intricacies of its business than the investor, often does not have complete information either about the enterprises, or about the industries of their activity, or about the details regarding the proposed technologies.

As a result, venture investment occurs in accordance with the average assessment of the liquidity of firms operating in a particular industry. Therefore, companies with investment potential that is objectively above average do not seek to invest based on low valuations. While in the case of firms with lower than average potential, there is a risk for the investor to make a mistake based on inflated valuations.

In such conditions, there is a risk that markets for innovative enterprises will not form at all where necessary. To avoid such problems, the management of young companies is recommended to give preference to venture investors operating in a strictly defined industry, which gives confidence in the competence of financiers.

The purpose and objectives of RAVI

RAVI, or the Russian Association of Venture Investment, defines its goal as supporting venture financing of innovative projects. In this regard, the list of RAWI tasks includes:

• create an entrepreneurial and political climate in the Russian Federation that is favorable to venture investors;
• represent the interests of venture financiers and their recipients in government bodies, the media, as well as among industrialists and financiers, both Russian Federation, and beyond;
• create communication platforms with modern information support for companies operating in the domestic venture investment market;
• develop a system for forming competent management personnel for venture entrepreneurship.