Trends of US Venture Capitals Essay

To begin with, capital is regarded as crucial to entrepreneurs and the sources, as well as types of capital available to the aforementioned individuals, are changing. It is evident that the gaps prevailing between investors and entrepreneurs have narrowed because of networks developed by modern technologies. In particular, easier communication has established innovative ways for investors to aggregate as well as deploy capital. On the same note, the transaction costs of capital formation are falling as depicted by the growth of phenomena including new venture funds, crowdfunding, as well as online lending, to mention a few operating beyond conventional hubs as well as with novel investing objectives. With that said, venture capital investments are seen to be exclusively pertaining to the development of advanced technologies. Specifically, venture capital is a significant topic that addresses numerous source of capital consisting of angel investments as well as crowdfunding.

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It is noteworthy that the United States venture capital market as well as the financial resources controls have grown since 1980. In fact, the country's concentration on venture capital investments has changed over the last three decades because this category of investors has sought out dynamic, fast growing, as well as high potential return on investment opportunities (Ghosh and Ramana 86). Notably, computer software, hardware, biotechnology organizations, medical services, as well as internet specific firms have all for relatively brief times, and this has been the largest recipient of the aforementioned country's venture capital investments (Dooley 28). On the same note, contemporary increases in the price of oil relate well with heightened venture capital support for industrial/energy organizations and the cleantech field.

With that said, research indicates that in the year 2014, the United States invested about $68 billion in venture capital deals where approximately 7878 employer enterprises reported receiving venture capital funds in the same year. Precisely, 30% of the recipients mentioned above were located in four areas including Boston, Los Angeles, New York, as well as San Francisco (Stangler, Inara, and Arnobio 154). However, there exists a substantial variation in the rates at which organizations succeeded in receiving the total amount of funding requested from venture capitalists. For instance, In San Francisco, 0.8% of organizations sought venture capital funds as well as received the total amount sought. Specifically, this is regarded as the highest percentage in the United States. In New York, 0.3% of companies sought for VC funding in spite of the fact that the city has the largest number of businesses receiving all the VC money they sought (Stangler, Inara, and Arnobio 161). Nationally, about 0.2% of companies sought VC as well as received the total amount they requested.

The market for venture capital has evolved substantially over many decades. Several players have entered the field as mentioned above. In particular, the new players are compared with four dimensions including equity, investment target, investment approach, as well as the investment objective. It is important to note that young new organizations play a fundamental part in contemporary knowledge-grounded economies, as they are vital sources of new job opportunities productivity growth, as well as radical innovations and disciplining device for the behavior of developed companies.

Angel investing is considered geographically concentrated. In particular, among the organizations receiving the full amount, they sought from angel investors of which 30% were in New York, Boston, San Francisco, and Los Angeles. Nevertheless, success rates vary across the United States though not as much with venture capital funding. It is important to note that venture capital investments across national borders in the recent years have begun to trend upwards. Specifically, cross-border investment in venture capital markets has heightened from about 10 percent of all venture capital investments to approximately 22.7 percent (Chemmanur et al. 574). Notably, the driver of the aforementioned increase is the considerable upward trend in global venture capital investments in emerging states.

A number of scholars have addressed the idea of financial constraints for young innovative organizations. In particular, inadequate of internal financial resource flow, as well as collaterals and asymmetric data not forgetting agency challenges, are the underlying reasons for the problems experienced in raising external funding. The available venture capital literature concentrates on the aforementioned issues as well as investigates ways that can help young innovative company's access capital for financing growth, internationalization, and innovation.

Although the landscape for venture capital has transformed over the last years, several innovative players including accelerators, family offices, as well as crowdfunding have entered the field not forgetting many venture capital tools have entered the market. Notably, the new players and devices have emerged due to the difficulties experienced by various entrepreneurs as well as early-stage new ventures in raising funds (Dooley 31). Other reasons contributing to the difficulties mentioned above include heightened technological opportunities, transformed needs in firms' product market, regulatory changes, as well as globalization. Firms encounter various challenges in raising seed as well as start-up capital take part in the policy agenda of local, national, as well as global governmental institutions.

Research indicates that entrepreneurs in the United States initiate approximately over six million new businesses every year. Nevertheless, out of all the innovative concepts, only a small section has considerable funding. In fact, several budding enterprises experience barriers in achieving the required financing from investors (Dooley 31). A part of the capability to appeal to the aforementioned investors relies on an organization's stage in the venture life cycle where the five stages consist of seed stage, start-up level, survival stage, rapid-growth stage, as well as maturity stage. It is important to comprehend that the unfunded and newly design enterprises start out in the seed stage.

Some scholars argue that online platforms take part in the democratization of capital. Specifically, several networks and platforms make it easier for entrepreneurs to access small amounts of capital from various individuals including online lenders, angel investors, and crowd funders. To begin with, studies indicate that angel investments reached approximately over $20 billion in the year 2015 and this approaches the conventional size of venture capital at $ 30 billion (Stangler, Inara, and Arnobio 172). Nowadays, angel investing is complicated with various syndicates of angels forming to take a considerable stake in deals as well as build diversified investment portfolios. A survey of angel groups indicates that 46% of angel groups surveyed invested about $250,000 or even less into every deal.

It is important to note that crowdfunding is a new a sector as compared to angel investing or venture. This refers to the act of sourcing small contributions of financial resources from a substantial number of people utilizing the internet as a crucial platform. A research conducted by Massolution in 2015 approximates that about $17.2 billion was invested in North America via all crowdfunding websites as well as has increased over the years. Notably, the crowdfunding field includes four fundamental categories, namely donation, equity, debt, as well as rewards.

Reward-grounded crowdfunding is considered the most prolific category in the U.S. because it provides backers a modest prize or prototype product in return for various investments. PebbleWatch is a well-known example and Kick-starter the excellent recognized platform. It is noteworthy that the aforementioned form of crowdfunding has raised approximately $3.5 billion since it began as per the Kickstarter websites.

On the same note, equity crowdfunding plays a vital role in allowing backers to purchase shares of an organization over the internet. The preceding crowdfunding is regarded as new and its establishment has been slow because of the available regulatory concerns. In simple terms, it can be concluded that crowdfunding is an effective way for entrepreneurs to test their ideas with small amounts of financial resources. Additionally, it creates a customer base as well as generates publicity for an innovative product (Stangler, Inara, and Arnobio 177). Crowdfunding success appears to heighten the opportunities of subsequent rounds of outside capital when projects are small.

It is clear that venture capital has skewed towards a handful of geographies. To begin with, the aforementioned trend appears to be going on; however, the bulk of venture capital (VC) tends to be increased in considerable funds controlled by developed organizations and the majority of the aforementioned considerable organizations remain in three cities, namely Massachusetts, New York, and California. A number of scholars maintain that the VC field may transform as well as capital now is emerging in new arenas more strongly as compared in the past. Specifically, it is evident that new VC organizations are geographically more broadly as compared to large and developed organizations are (Thomas and Chad 16). Additionally, the crowd-funding field proposes a similar trend. Research indicates that new crowdfunding investments are much less skewed toward California. Crowdnetic depicts that about 27.3% of crowd-funded dollars were made to California-owned organizations.

Studies indicate that VC, as well as business angel financing, have conventionally proposed as critical sources of financing for innovative organizations that find it hard to access bank or even debt finance. Nevertheless, the market and landscape for entrepreneurial finance have transformed over many years. On the same note, many new players have merged as well as there has been a growing presence of other players that have conventionally not had a fundamental role in the market (Thomas and Chad 16). Specifically, the aforementioned players are heterogeneous as well as consist of players as diverse as the family office, venture debt funds, as well as the crowd. Some of the preceding new players value financial objectives as well as interested in non-financial aims. A number of non-financial objectives include social targets in case of social venture funds, political goals in case of government-sponsored funds, product-based as well as community-building objectives in case of reward-grounded crowdfunding, and technological not forgetting strategic objectives in case of social venture funds.

Apart from the emergence of new players, the whole field of the venture has transformed. Specifically, the median pre-money valuation of young organizations is increasing into innovative historical heights, especially in later-level financing. Ever-rising club of unicorns witnesses this, and this has established rumors of a tech-bubble because many of the aforementioned firms are unprofitable or even do not have developed a sustainable revenue-model for their enterprises. On the same note, high valuation can take part in putting pressure on founders because they require to deliver on the preceding anticipations.

Works Cited

Chemmanur, Thomas J., Tyler J. Hull, and Karthik Krishnan. "Do local and international venture capitalists play well together? The complementarity of local and international venture capitalists." Journal of Business Venturing 31.5 (2016): 573-594.

Dooley, James J. Trends in US Venture Capital Investments Related to Energy: 1980 through the...