Venture Capital (Research Paper Sample)

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Contents TOC \o "1-3" \h \z \u Abstract PAGEREF _Toc414144717 \h 3Venture Capital PAGEREF _Toc414144718 \h 3Introduction PAGEREF _Toc414144719 \h 3Venture Capital in Promotion of Economic Development PAGEREF _Toc414144720 \h 4Venture Capital as part of the Financing ecosystem PAGEREF _Toc414144721 \h 4Venture Capitalist in Renewable energy PAGEREF _Toc414144722 \h 5Policies that Affect the Venture Capital Investment in renewable energy PAGEREF _Toc414144723 \h 5Factors influencing a post- VC capital into the renewable companies PAGEREF _Toc414144724 \h 5Conclusion PAGEREF _Toc414144725 \h 6Reference PAGEREF _Toc414144726 \h 6
Abstract
Renewable energy includes solar energy, wind, hydro/ ocean power, biomass energy, geothermal and other different of waste energy. Financing of the renewable energy includes the development of companies, the financing of power generation, investment in technology and fuel producing materials that use the renewable energy technology. It also entails the investment in technology that greatly improves energy efficiency. Most of the commercial renewable energy projects that are present in the pipeline today and also proposed an applicant under the (ARRA) this is the American Recovery and Reinvestment Act have been stalled due to the lack of financing as a result of constrained capital market. This research paper is about the role of capital venture in the development of the U.S renewable energy sector , and the aspect of the government policy that have the major impact on the venture capital investing in the renewable energy.
Venture Capital
Introduction
Venture capital as an asset class that has been in existence for ages, mainly in the form of high risk capital that was provided by the wealthy families or big institutions to assist early stages of the entrepreneurial business in order to get off the ground. Whether it was funding projects of people such as Thomas Edison the light bulbs, cars by Henry Ford, voyages of Christopher Columbus, the notion has been to provide for those project, which there is no other viable sources. The expectation is that to provide a significant number of venture capital funded businesses will either fail or at least fail to meet the expectation of their funders or founder(Estrin,2008). It is true to claim that a minute number will succeed and actually, some of these business will succeed amazingly. The business that will succeed will then provide the funds required to fund other business thus the cycle continues.
During the 1990s and early 2000s in the United States, the number of capital ventures was great to the extent capital venture no longer limited itself as the funder of last resort, and as a result the availability of the venture capitalist to finance exceed the real opportunity, as a result the returns enjoyed by the investor fell considerably to a point where they were no longer in a position to fund the next generation of start-up. It has been recognized that investing opportunities flow and ebb, through time shift from one sector to another as the industries grow and mature. This is happening present as the maturing of information technology; telecommunication and biotechnology give slowly give way to the growing venture capital investment opportunities available in the water, energy, and material. A study that was conducted by Ewing Marion Kauffman Foundation concluded the following. (i) challenging economic times can present itself as the rebirth of the entrepreneurial capitalism, (ii) the new companies are much better in the creation of new jobs and fueling economic growth than the more mature companies, the polices that greatly support the entrepreneurship clearly support economic growth. It in the hard times that the large companies’ often shed off jobs and call for relief from taxation and other government-induced burdens, the need is actually greatest for the new entrepreneurial activity and the support for such activity(New Energy finance,2008)
The current venture capitalist mainly raises money from the large institutions such as the banks, mutual fund companies, and large pension funds and from the high- network individuals in the society. They the locate and identify promising entrepreneurial companies in which they then invest their money for a period ranging 5-8 years ( the time frame may be longer but not more than 10 years)(Mollica et al 2007). The main reason for making this investment is actually to earn a significant financial return for the Venture Capitalist firma and the institutional investors. The roles of a Venture Capitalist firm is to find new companies with the largest potential of growth and actively assist this firms to grow and then succeed, they not only provide cash for the firms at a critical point but they also share in the management and technological expertise thus providing a useful introduction to the helping tasks such as the recruitment of key management positions as the companies gradually grows(Gladstone, 2002). The venture capitalist are highly selective, typically they fund about 1percent of the business plans in which they consider important. In analyzing a potential investment the venture capitalist, pay great attention to the technology, business model potential market size, management team and capital requirement, period it will take to scale and many more. The average venture capitalist firm at any given time manages at least several hundred million at any given time, a typical venture investment in a new company has been somewhere between $1 to $10 million. Most of the companies also make a follow on investment as the companies slowly grows, thus then increasing the investment to about $10 to $ 50 million over the life of the successful companies. It common for multiple Venture Capitalist to invest in the same company time thus pooling their resources(Kaplan 2002.
Venture Capital in Promotion of Economic Development
The current venture capitalist industry in the United States emerged in the 1970s and since then it has been a key driver of the economy. Over the last three decades, the United States venture capitalist industry has invested approximately $456 billion in more than 27,000 companies, including companies such as Google, Apple, Cisco, Staples, eBay, Genentech and Amazon it has assisted in the support of the growth of an entire new industries such as the information and technology and biotechnology. In 2008, United States companies that were supported by the venture capitalist employed approximately 12 million people that is about 11percent of employment in the private sector and it generated approximately $ 3 trillion in revenue that is about 21 percent of the United States economy. The venture-backed firms tend to disproportionately contribute to the economic growth rate. From the year 2006-2008 the jobs in the Venture baked firms grew at 1.6 percent this is about 0.2 percent of the total private sector- this is about an 8 times higher for the venture capitalist backed firms, the revenue which was earned by the venture capitalist baked firms grew at 5.3 percent(Gomper 2004)
Venture Capital as part of the Financing ecosystem
The venture capitalist firms function as a part of the broad financing ecosystem, and other components of that system as important for the generation of economic growth. Before the point at which the VC firms invest, the public money may be used to support the initial creation of the new technology and business ideas though the government funded research and technological development. As the venture capitalist, funded firms continue to grow steadily they then turn other different players in the financial ecosystem for any continued cash support(Landstone 2007). An Initial Public Offer (IPO) enables the private company to have access to the cash that is held by the individual members of the public, by those individuals who buy shares in the company. An acquision enables to the financial resources of the acquiring firm, if for some reason continues to grow independently without an IPO, then other investment firms may come in in order to provide additional capital. Such firms include both the private equity and hedge fund, but also typically, it may include the banks and insurance companies, especially when the project finance is concerned( Cumming, 2010)
Venture Capitalist in Renewable energy
From 1995-2005, the renewable energy accounted for less than 2 percent of the total investment into the United States. The percentage has continuously increased in that in 2006, that percentage jumped to about 6 percent, in 2007 it increased by 9 percent and 15 percent in 2008, on this year more than 4 billion venture capitalist funds were invested in the emerging U.S renewable energy companies out of the $28 billion of the total venture capitalist. Most of the venture capitalist investor sees the renewable energy as the next major opportunity in the economic frontier; they have been allocating most of their time and money in order to seek the most transformative technology and ideas. The initial venture capitalist investment is made generally in the technology risk stage this is because the entrepreneur are actually testing, refining and developing their technology. "It is important to note that many renewable energy investments require a different type and level of support from VC firms than have companies in previous VC-funded industries. Early-stage companies in the renewable energy sector often require significant amounts of time, capital, and operating expertise in order to scale up – far more than a typical IT company does, for instance. In response to this, VC firms investing in renewable energy companies are tending to invest larger amounts of money, in a larger number of rounds, and over a ...