Venture capital: Global scenario

Abstract

This article begins with a brief overview of different stages of venture capital financing and how venture capital differs from private equity. The importance of venture capital financing and the reasons for its importance are explained with the help of information from some selected economies. The development and growth in global venture capital from 1997 to 2004, along with the major players in different regions, are discussed. The global rankings with respect to venture capital investment, compound average growth rate, high-tech investment, and buyout and expansion investments presented here, indicate the trends in venture capital investment around the world. Another important aspect covered is the utilization rate of venture capital and the funds available for further investment, which clearly bring out the efficiencies and inefficiencies of different regions in utilization of venture capital amount raised. Finally the Index of Venture Capital Development (VCDI) is used to identify to what extent venture capital financing is being used for promoting high-tech early stage investments in business ventures with respect to three regions (North America, Europe, and Asia Pacific), which cover almost 98 percent of the global venture capital industry. Though there exist some differences of opinion about how to define venture capital and what makes it different from private equity, a broad consensus has been reached by most of the venture capital associations around the world about what are the different stages of financing that can be categorized as venture capital financing. There are two basic stages of venture capital financing; viz., (i) Early Stage (which consists of seed and start up financing for newly formed business ventures by the potential entrepreneurs) and (ii) Later Stage (which consists of expansion, mezzanine/bridge, and buyouts/buy-ins financing for established business ventures which succeeds the early stage business activities). Some consider only early stage as venture capital financing and later stage as non-venture capital financing, whereas others consider both as venture capital financing and term it as private equity. Throughout this article, the term venture capital is used to indicate both venture capital and private equity financing.