55 Venture capital Jeffrey M. Pollack and Thomas H. Hawver Venture capital (VC) represents a financing option for entrepreneurs whereby funds are provided by an investor, to a recipient, as either seed money, start-up funds or expansion funding to start, or grow, a business (Jeng and Wells, 2000). Generally, a firm providing venture capital is a privately owned company representing the interests of multiple individual wealthy investors with the primary purpose of maximizing return on investment over time (Burton and Scherschmidt, 2004; de Bettignies and Brander, 2007). Though an award of VC funding is difficult to achieve, funds from venture capitalists are especially desirable for entrepreneurs due to the relative flexibility of the equity finance structure and available repayment options. We describe, briefly, the history of venture capital, the similarities and differences between alternative funding options, as well as the procurement process for entrepreneurs. Since 1977, bank lending has remained fairly constant while VC investments are 100 times larger in 2001 than they were in 1997 (Ueda, 2002). An organization called American Research and Development, founded in Massachusetts in 1946, is considered to be the first modern venture capital company, and since then VC firms have specialized in matching investment capital with ventures that are screened and deemed worthy of investment (Allen, 1969; Jeng and Wells, 2000). In general, the venture capital process is described as having five main steps: (1) deal origination, (2) deal screening, (3) deal evaluation, (4) deal structuring and (5) post-investment activities (Tyebjee and Bruno, 1984)...
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