In the 60s and 70s most venture capital firms focused their investments solely on starting and expanding companies. Most of the time, these were breakthrough companies that dealt in one way or another with technology whether it was electronic media, medical technology or data processing. During the early years VC was nearly synonymous with financing technology. After many booms and busts and the great recession venture capital has become more diverse in its investments. The venture capitalist of today invests finances in entrepreneurship in many different industries such as retail marketing, energy consumption and even childhood education. A Herndon based education provider benefited from $125 million and a district based LivingSocial brought in $400 million. And an energy conservations company, GridPoint based in Arlington fetched $23.6 million. It’s not that these were headlining deals, or huge financial investments for the venture capitalist; it’s more that they are signs of a shift in the entire VC market to more versatile options.
Traditional venture capitalists are just gaining enough of a sense of security to begin reentering the market. However, the general direction presently is to find businesses with the greatest potential for growth and then help to push them into the market. During the recession private equity firms, corporate VC firms and angel investors such as Efraim Landa did not sit idly by but their roles did change somewhat and become more pronounced following the worst economic slump in the last several decades. Since the recession there is even a greater need for early stage and seed funding and many VC firms are once again shifting their focus. This time it is toward companies that are more mature since these types of investments are more likely to realize quicker returns. In the process, there seems to be a sort of hole left in the middle but it has been partially filled in with the rise of the angel investor. This form of investing is generally done by injecting a company with smaller monetary amounts which are usually less than $1 million. Some experts say that some businesses just need this small infusion to be able to find success without the need of involving a major VC firm.
Impact of Small Angels
Since the dot-com boom in the late 90s smaller investors have actually had a larger role to play. This is because startups for technology are lower than it was previously. The overhead for launching this type of company is at an all time low and that means that there is not a need for huge funds from its inception. This makes startups more accessible for the angel investor since it works better with the smaller economic picture.
Of course there have also been some changes for the venture capitalist who is investing in a business which is expanding or exiting whether it involves dealing to sell the company or taking it public. Some of the smaller, budding investor types which were once overlooked have been added to venture capital reports since they are now capable of offering more influence in the world of investments. As an example, a company may include investments from another company and label it as part of a strategic partnership offering a totally different type of investment agreement.
Where is VC Now?
During the recession there was a lot of reservation on the part of venture capitalists, as there should be. However, the recession is now over. All economic indicators have begun to show economic growth as well as a slight decline in unemployment. Since the recession finally ended people are beginning to spend again. Some very established companies have gone belly up while newer ones survived. It is more likely that a business will endure after they survived a drought. VC firms are now becoming more lenient with capital for various business ventures. The one thing that lenders and investors learned through the recession is that business as usual cannot be counted on to remain consistent.