What is a venture fund?
It's a type of investment fund for investors that want to invest in small or start-up private companies that have a strong potential for growth. Venture fund investments are generally long-term and high risk but offer the possible opportunity of high returns.
Where have you heard about venture funds?
In the 70s and 80s, the success of Silicon Valley companies like Apple Inc, that were heavily funded by venture capital, led to a proliferation of new venture capital funds looking to capitalise on the internet boom by finding and investing in technological start-ups.
What you need to know about venture funds.
For entrepreneurial companies looking to expand, venture capital funds can provide an opportunity to raise funds that they might not get otherwise. On the other hand, venture capital funds do tend to play a more active role in their investments, often providing guidance to the company or even holding a board seat
As with other funds, investors in venture capital funds commit a certain amount of money to the fund and pay an annual management fee. The fund manager chooses a number of private equity opportunities to invest in and manages those investments.
Typically venture funds use a barbell approach to investing; they attempt to diversify the high risk by investing in a wide variety of start-ups with the hope that at least one be successful and reward the fund with a large return.