The role of venture capital in innovative business
The article refers to the problems of financing in innovation economy. The author proves that in modem environment the most effective form of developing innovative project is venture capital. Venture capital is a specific type of finance well suited to the requirements of new technology based firms. The combination or research and development, intangible assets, negative earnings, uncertain prospects and absence of a proven track record, which are characteristic of start-up and pre-commercial initiatives, leads to an unacceptably high perception of risk for conventional financial institutions and debt financing. Venture capital addresses the consequent financing gap through equity participation. Venture capital can be seen to consist of a demand and supply cycle. The former represents the demand for capital for the creation and growth of companies - by implication SMEs. The cycle starts with the necessity for seed capital, to fund an initial idea or basic research. Similarly, venture capital firms can be viewed as representative of the supply cycle, starting with the creation of a venture capital fund, typically having a 10-year life span, raising the necessary funds from capital providers and marketing, investing the fund in «investee» initiatives and companies over 2-3 years. The cycle renews itself with the venture capital firm launching a new fund.