Investments are a set of costs (financial, labor, material) that are directed to increase profits. They ensure the development of the enterprise. One of the directions of financing is called venture capital. What it is?

essence

Venture capital is investing in high-growth businesses. This type of activity is more typical for scientific research in high-tech areas, where there are prospects and a high proportion of risk. The purpose of investing is to obtain a high income in the form of a cash return when selling a company after its development in the market.

The word "venture" in translation from English means "risk business". Venture financing is a source of long-term investments. Usually they are allocated for 5-7 years to organizations that are at an early stage of development. Funds are provided to operating companies for the purpose of expanding and modernizing production.

To get money, you need to prepare a plan, develop a product with competitive advantages that would be interesting for an investor, and assemble a team of professionals with many years of experience in a particular industry.

Features of venture financing

This type of investment is characterized by a number of features:

• Contributors know in advance about the risks of financial loss in case of failure of the organization. With a positive outcome, investors will receive high profits.
• This type of financing provides for a long waiting time (3-5 years), after which the investor will receive income for 5-10 years.
• The investor owns a 25-40% stake, but has a high personal interest in the success of the institution. Therefore, it provides consulting and management services.

Stages

• Pre-launch investments. At this stage, small amounts are invested to prepare the technical and economic base.
• Start-up capital is created on its own. As the business develops, other investors will join.
• Second phase. Funds are allocated for the completion of development and initial marketing.
• Third stage. Financing the start of production. The company earns little or no income.
• Fourth stage. transitional investments. Working capital is provided to expand inventory and pay bills.
• Fifth stage. Acquisition of ownership of the company, its modernization into a private institution.

Financial investments come in shares. The business plan includes a schedule for achieving intermediate goals. Contributors provide pre-calculated amounts sufficient to achieve the following subtotals. Such injections limit the potential losses that could arise if the company does not live up to expectations. The possibility of stopping the receipt of funds at each subsequent stage motivates the entrepreneur to quickly realize the potential of the organization. Infusions are given at short intervals. in the future, control over the organization is strengthened. With each subsequent injection of funds, the number of shares of investors increases.

Venture Funding Sources

There are quite a few of them:

• public funds. The organization is managed by an independent company.
• Partnership with venture capital. Funding projects by a group of businessmen who have created a company and invest in growing organizations.
• Target capital of corporations. Venture investments of holdings are one of the main sources of project financing in the USA. Large corporations pool their own resources by merging small funds.
• capital of banking firms. Initially, such investors provided funds in the late stages of the formation of organizations. With the expansion of the range of services, private capital appeared, for example, SBIC and MESBIC.
• individual investors. Private investors were once venture pioneers. Today they participate in the creation of "seed" capital, investing in very risky projects.
• Government. In the US, the government supports young firms. The purpose of financing is not so much to make a profit, but to support the company in the early stages of development.

Specifics of business in the Russian Federation

Venture funding in Russia lags behind that in the US. Depositor organizations are formed on the initiative of individuals and exist without state support. The most popular is the Moscow Network of Business Angels (MSBA). Although after the financial crises, attention to this source of funding is increasing. TUSRIF, SEAF, Framlington funds appeared on the market, investing in promising companies. Also, the Russian Technological Fund began its work, the National Venture Fund "Green Grant" was registered by the Russian group "Rostinvest". All of them are aimed at financing developing companies.

The first funds in the Russian Federation appeared in 1994 at the initiative of the EBRD. In three years, 78 companies were registered. In addition, financial investments in the Russian Federation also came from 16 Eastern European funds. After the events of 1998, only 15 institutions remained.

The work of funds in Russia is very difficult. There are no legislative acts stimulating the development of this direction. The issue of exiting the business (sale of venture capital) remains open. To solve the problem, it is not necessary to create new legislation. But you can add management elements to civil acts.

Factors

According to unofficial data, there are 10,000 private investors in the Russian Federation with untapped opportunities. In order for venture financing of innovative activity to develop, a number of conditions are necessary:

• stable situation in the country;
• availability of scientific and technical progress, design developments;
• increase in the level of prosperity;
• narrowing of speculative income, etc.

There are factors that limit the growth of this area:

• low degree of development of the stock market, which makes it difficult to find potential investors;
• lack of managers capable of revealing the commercial opportunities of developments;
• low customer demand for domestic products;
• lack of government support.

Insurance

Venture financing is a risky business. It is not insured in any country in the world. But it is possible to protect the property of innovative enterprises, the life and health of top managers, liability, etc. That is, apply the classic elements of insurance to this type of business.

Selection of projects

Forms of venture financing depend on the classification of companies.

1. Seed is a project, a business idea that needs to be financed at the stage of additional research, creation of initial product samples.

2. Start up - new companies that need resources to conduct research and development and launch sales.

3. Early stage - companies with their own developments that are at the initial stage of product sales.

4. Expansion - organizations that need additional investments in order to expand production volumes, conduct marketing research, increase capital or working capital.

Grade

Before making a financing decision, the investor and the entrepreneur must agree on the value of the company. The founders set the price themselves. There is no "market" or "auction" at this stage. Investors, wishing to save money, may abandon the project altogether or team up with potential competitors and make a consolidated offer to management. That is, the price is formed during negotiations. Most often, it is set at the level of investors' supply. Then the terms of financing are discussed and a preliminary agreement is created.

Further, “pre-investment” and “post-investment” values ​​are determined. The first is the price of the business before the injection of resources. The second is the market value of the organization at the finishing stage. The parties discuss the share of the investor's share capital. Therefore, the calculations begin with the second indicator. Next, the share price is determined.

Example

In exchange for venture financing of the project in the amount of $1 million, the investor wants to receive 1/3 of the company. After injections, the value of the business will be $3 million. Initial price: 3 - 1 = $2 million.

Let's say the company placed 500 thousand shares at the initial stage. Then the investor must receive an additional 250 thousand securities in order to acquire 33.33% of the capital. The value of the share is 1,000,000: 250,000 = 4 million.

Calculation algorithm:

1. Pre-investment value = number of old securities x new price = future value - investment.

2. Post-Investment Value = Pre-Investment Value + Investment = Injection: % Equity = Total Number of Shares x Price.

3. Securities price = injections: number of new securities = pre-investment value: number of all securities (shares, options, guarantors).

4. Price increase = pre-investment cost of issue: post-investment cost of issue.

Types of financing

Venture investments are made in relation to small enterprises without obtaining any collateral. Funds are directed to equity or provided in the form of an investment loan for several years at a small percentage. Representatives of the investor participate in the management of the company.

Prior to the sale of the company, the main form of injection is share capital. Borrowed sources are attracted if the firm expects an increase in capital or plans to make a profit.

Raising funds is more relevant for mature companies. But such capital can affect the share of ownership of investors, especially owners of preferred shares. Therefore, permission is required to obtain it.

Infusions for start-up companies are carried out in the form of:

• commodity credit from suppliers;
• factoring;
• bank loans under guarantees;
• bridge financing.

The cheapest form trade credit. Purchased equipment acts as collateral, which reduces credit risks and the cost of raising funds.

Factoring is a crediting of receivables. The service is provided by banks to firms with an established customer base and predictable cash flows.

Receipt credit line in the early stages of development is impossible without guarantees. But the guarantor may demand a share in the capital of the company as compensation for the risk. Debt investment is more expensive than a regular loan.

Bridge funding used if the company has spent all the funds received earlier and expects new injections. Bridge loans come from individuals who have already financed companies. They are called upon to help when current investors are unable to provide capital.

The mechanism of venture financing in this case is carried out in the form of debt and convertible notes (convertible promissory notes). This is the product on which the coupon is paid. Upon completion of the next phase of the infusion, the notes must be redeemed. Coupons can be exchanged for shares. The rate on ordinary bridge notes is 8%, and on convertible notes - up to 15%.

For successful companies, this type of injection is an intermediate step between two stages of financing. Provides participation in the project not only for new, but also for existing shareholders. If the organization is experiencing difficulties in cash, bridge notes become the only source of funding, then there will be a conflict of interests of holders and shareholders. The first will have the advantage.

Conclusion

Venture financing is a special type of investment that has a number of advantages: raising funds for the implementation of risky projects, the absence of intermediate dividends. But finding contributors is difficult. The investor must be interested in the project and take part in the management of the organization.

There are many types of investment, differing in terms, industries, properties of capital. One type of investment is venture financing of projects (). What is the peculiarity of this type of investment?

Venture investment belongs to the group of high-risk investments. The essence of these financial injections is that the money is invested in the authorized capital of developing enterprises that are engaged (or are going to be engaged) in the development of high-tech projects.
Large companies that receive stable profits are not interested in investors of this kind.

Structure of venture investment

As already mentioned, this type of financing refers to long-term investments with high risk. All that interests a potential investor is newly created small and medium-sized businesses, whose main task is the development and implementation of new technologies. Of course, provided that these technological solutions will be in high demand in the market in the future. The goal of the investor is to make a profit several times over the money invested in the project in a few years.

Naturally, venture financing is not available to all newly created companies. There is a fairly clear ranking of enterprises that may qualify for funding:

1. The first are organizations that have a ready-made idea in their assets, but do not have the funds for subsequent research work.
2. Newly created companies with ready-made technological developments, but not having the opportunity to establish a trial release of the product.
3. Enterprises whose products have already been tested and are ready to launch products on the market.
4. Operating enterprises with ready-made technological solutions, launching their products on the market, but in need of financing. Cash infusions are needed to expand the scope of activities, develop new technologies, and conduct additional research.

This classification does not guarantee that all companies that meet the listed data can immediately receive venture financing. In fact, investors are not looking for potential partners. To receive financial injections, it is the newly developing companies that must themselves look for an investor. How does this happen? By searching through acquaintances, friends, the Internet. What you need to provide to the investor: a decent business plan with a development strategy for several years ahead.

If many aspiring entrepreneurs think that with such a business plan you can go to the bank and get a loan, they are greatly mistaken (by the way). The time when such schemes worked remained in the nineties of the last century. Today, not a single bank will undertake to finance a high-risk project that does not guarantee solid profits at the initial stage. Venture investment, while similar to bank lending, differs precisely in that the investor is ready to take risks and invest in such a project.

The investment scheme is quite simple and transparent. Venture financing of investment projects is carried out as follows:

1. A small business with an innovative project approaches a potential investor. The purpose of the enterprise is to obtain financing for the development and implementation of high-tech solutions that can ensure constant demand in the market. At a minimum, such an enterprise should interest the investor not only with an innovative idea, but also with a competent business plan.
2. If the investor is interested in the proposal, the details of future cooperation are discussed. Financing can be carried out by injecting cash into the share capital of the company or in the form of loans (for a long period at a minimum percentage). At the same stage, the distribution of future profits is discussed. Features of venture financing are that a potential investor is interested not only in an innovative project that should be financed. Investors pay much attention directly to the organization of the enterprise. After all, it is competent management and the correct distribution of the funds received that ultimately affect the work on the introduction of new technologies.
3. After the company takes a leading position in the market, the liquidity of the shares increases, and the profit increases, the time comes for the distribution of income. For example, an investor can simply sell his stake to the company at the end of the project (provided that they rise in price). In general, a project can be considered profitable if it is possible to make a profit of 20 to 50% in about 5-7 years after the start of investment.

Types of investors

There are two main types of venture capital investors:

1. Venture funds, which are formed with the assistance of several investment funds.
2. Business angels, that is, single investors. Roughly speaking, this category includes large entrepreneurs.

Venture funds have at their disposal accumulated (total) capital, which is distributed among investment projects. All members of the fund are divided into two categories:

1. The main partners who control and distribute financial flows. The share of the main partners in the venture fund is no more than 20%.
2. Limited partners who directly invest money in the fund, but do not have the right to dispose of the funds. Their share in the fund can reach 80%.

Venture funds, in turn, are divided into:

1. Specialized, which finance only in a certain industry or in a certain region (country).
2. Universal, which diversify financial injections into completely different industries.

Venture capital funds finance a wide variety of companies at different stages of their existence. Such organizations willingly invest in companies that have just opened or in enterprises that are just planning their activities (seed investment). But preference is given to still existing companies that have a ready-made and tested project, the so-called start-up companies. If an existing enterprise plans to expand the scope of activities and enter the market with a new offer, the venture fund will certainly finance such an undertaking.

Today, there are a large number of corporate funds on the market, which unite many small organizations and companies operating in the field of innovative technologies under their wing. The merger of diverse companies enables corporate funds to minimize possible risks by diversifying investment interests.

Now about the so-called business angels. These include large entrepreneurs or wealthy people who carry out venture financing of the same small enterprises and newly created companies. The difference between business angels and venture funds is that the process of obtaining funds from individuals is much faster, the terms of repayment are gentle, and the interest on invested capital is lower than that of funds.

Venture investment risk

Since the main point of investing is to place finance in the equity capital of the organization, the most important risk can be called the possible illiquidity of shares in the future. In a word, where there is a turnover of shares, there is always a risk of shortfall in profit or direct loss.

A venture investor finances an enterprise whose shares are not yet listed on the stock exchange. The peculiarities of venture financing are that such projects are designed for a long period, so it is almost impossible to predict the possibility of making a profit at the initial stage. It all depends on the intuition of the investor himself. Moreover, the investor often cannot withdraw the money invested in the project until the end of the contract.

The risk is also due to the fact that this kind of investment is always aimed at the development and implementation of new technologies, often quite unusual. Such projects, of course, can bring a decent profit, but there is also a high probability of failure of the developed idea.

Venture capital investment is similar to bank lending. The only difference is that the interest in investing is much higher. But this is balanced by the fact that there are no guarantees in such an investment.

Venture investment in Russia

Although it is generally accepted that America is the birthplace of this type of investment, venture financing was almost always present in Russia. The most striking example is developments in the military-industrial complex of Russia. It is thanks to venture financing that the country's military complex has reached significant heights. Naturally, the investment was made not with the support of private funds and individuals, but directly from the state budget.

An attempt to create venture funds in Russia was made back in 1994-1995. For a number of reasons, the development of private investment for the introduction of innovative technologies in Russia did not find a proper response. Venture financing in Russia was carried out by funds that had in their composition the majority of capital of foreign origin. Simply put, the developments successfully brought profit to Western investors, or even went abroad. The reason is the weak material and technical equipment and the lack of tax incentives for Russian enterprises that introduce advanced technologies.

Today, the problems of venture financing in Russia lie in the wrong approach of the investors themselves. The main snag is that the Russian economy is currently not stable, it is not entirely correct to talk about projects that can be implemented in 5-7 years. In addition, funds that could invest funds demand from Russian enterprises not only fresh technological solutions, but also well-established production. Simply put, in order to receive funds from the fund, you need to show the results of the finished product, which has received encouragement from a wide range of buyers. With such an approach, the very idea of ​​venture capital simply loses its meaning.

However, given the presence of many people with high scientific and technical potential, one can hope that there will also be business angels who are able to adequately evaluate the proposed business projects and promote the development of new technologies through venture financing of small enterprises.

Venture business in translation means "risky undertaking". Most often, the object of its financing is only emerging entrepreneurial ideas. Sometimes it can be organizations that have been on the market for a long time.

The essence and principle of operation of venture funds

Venture capital projects are the commercialization of any innovative technology through risky financing.

They include 4 stages of development:

• R&D
• Development of innovative projects
• in-line production
• After-sales service

A venture fund is an investment asset aimed at innovative programs. His key task is also to direct them to a potentially highly profitable business.

The principle of operation is to invest in securities or shares of many enterprises.

About 80% of projects do not bring returns, but even the profit from the remaining 20% ​​can pay off all the losses.

The scheme of the fund can be depicted as follows:

1. Participants can be various structures: pension funds, banking institutions, private individuals. Contributions to projects are made not only in cash, but also in comments;
2. The venture organization also contributes part of the money;
3. The fund invests in an average of 10 companies. Up to 5 years is involved in their development. When the business is set up and makes a profit, the fund sells its shares.

The main components of the successful development of a venture business are:

• State innovation policy
• Investments in the growth of intellectual capital
• Businessmen willing to take risks
• Scientific and technical progress
• Developed education system

This type of activity has a number of advantages:

• The number of enterprises is increasing due to the provision of financial support.
• Until the profit is made, the entrepreneur does not have to pay interest to the fund.
• Contributors not only finance the project, but also share their experience, provide legal support, and advise in difficult situations.
• Thanks to venture financing, the latest technologies are being developed and implemented.
• The technical level of enterprises is rising.

Disadvantages of venture business:

• Sufficiently large risks;
• Unpredictable and long exit of the company to a satisfactory level of profitability.

Consequently, venture activity is the basis for building a new economy, which determines the ability of the state to be competitive in the technological field at the global level.

Where to get money for business development in Russia?

A country with a high level of corruption will not be able to be an effective direct investor.

Especially now, during the crisis, the attitude towards the venture business in Russia is ambiguous. The practice of such funds is hampered by many different factors. The main one is insufficient volume of laws that would stimulate technological development in the state.

Another problem is complexity of registration this kind of activity.

The search and selection of investors is a very responsible and difficult task. It is necessary to find such a person who is not only able to invest financial resources, but also has weight and good business connections in the field of business, can help in managing the enterprise in times of crisis. After all, you can divorce your wife, but not with a depositor.

• It is necessary to try to support the company with your own money for as long as possible, to attract other people's funds only when it is inevitable;
• If a decision is made to attract an investor, then it is necessary to clearly determine the required amount and share of his participation in the profit;
• You should find out as much information as possible about a particular investor, weigh all the pros and cons;
• It is important to make very, realistic financial projections in order to prove the success of your project in the future;
• Do not rashly accept the investor's offer, but find a suitable investor for a particular type of activity. It is desirable that he had experience in similar areas of business.

5 main methods for finding a source of venture capital investments:

1. Personal connections.
2. Professional connections.
3. Companies specializing in the selection of investors.
4. Associations of business angels.
5. Internet.

Features of venture business management

Venture business is a powerful stimulator for improving enterprise management methods, the basis of which is innovation.

A feature of this area of ​​activity is the initiative participation of the investor in the development of the company financed by him.

Most often, a venture fund representative is included in the directorate, which gives him the opportunity to develop strategic leverage. He trains the actual leaders of the company, gives them financial advice.

There are 5 stages in the development of venture-funded companies:

1. initial development. Stage of idea emergence and development of further project management technologies;
2. initial stage. Characterized by the start of the organization of production. During this period, the company is just beginning to enter the market;
3. Early growth. The commercial implementation of the product begins, but the profit is not significant yet;
4. expansion stage. The business needs money to invest in additional equipment;
5. Exit. The sale of the investor's share is being implemented.

A number of features of venture project management:

• The contribution of investment to the enterprise is always associated with costs in obtaining information, since almost all companies are at an early stage of development. Only by participating in the field of activity of the enterprise, the venture capitalist gets a better idea of ​​​​its potential;
• Venture capital is a long-term investment. An investor can exit the project at a certain stage of its development, on average this period is at least 5 years;
• Another feature is the limited ability of the investor to determine the amount of financing, since the company itself declares the rate necessary for its development. Then the investor can adjust his investments and, together with the enterprise, finalize his business plan.

Always present in venture capital danger of loss. In fact, this is a possible deviation of the actual income from the planned profit, which can lead to significant financial losses in the future.

Risks are divided into the following types:

• Lost profit risk
• Profitability risk
• Risk of direct total loss

The probability of loss can be due to various reasons. This is the state of the economy, and market development trends, and processes directly related to this project.

The risks faced by a venture investor also include:

• Country

Such risk includes a range of economic, political, legal and other factors associated with a particular country. There is a danger if we talk about a state with a precarious economic situation.

• Regional

Closely related to country risk. Depends on the unstable state of a certain individual region.

• Industry

Associated with changing circumstances in a particular industry. It may be based on the depletion of resources, changes in demand, technological problems.

Methods aimed at minimizing possible risks:

• Scrupulous selection of invested projects;
• Staged funding, when funding for each stage is made only after achieving good results in the previous phase;
• Diversification;
• Experience and knowledge of the entrepreneur.

The fundamental purpose of venture capital funding is to combining the funds of some entrepreneurs and the intellectual capabilities of others, which in the end gives a good profit to both parties.

DEPARTMENT OF FINANCE AND STATISTICS
Course work
By discipline: "Investments"
On the topic: "Venture financing"

Completed by a student:
Petrova M.V.
FK43 groups
Scientific adviser:

Moscow2011

Content:
Introduction………………………………………………………………………………..2
1. Venture financing;……………………………………………………..4
1.1 Definition of venture financing;………………………………………………………........................ ..6
1.2 Features of venture financing……………………………………………………………………..…..8
1.3 The essence of venture financing………………………………………………………………….……….13
2. Venture financing in Russia…………………………………………………………………………….…….14
2.1. The history of the development of venture financing in Russia…………………………………………………………………………….…….16
3. Mechanisms of venture (risk) financing: world experience and development prospects in Russia…………………………………………………………………………….……..21
4. Trends and opportunities for the development of venture financing in Russia……………………………………………………………………………………..25
Conclusion………………………………………………………………………………28
Appendix…………………………………………………………………………………30
References……………………………………………………………………32

Introduction
Raising equity capital in small and medium-sized private companies as a phenomenon and process was not known in post-perestroika Russia until recently. The free capital market has not yet developed in our country, so the majority of small and medium-sized entrepreneurs in Russia believe that there is nothing special to attract yet. At first, great hopes were placed on foreign investment, but over time, the Russian entrepreneur realizes the futility and loss of this option.
The active penetration of foreign capital into the Russian market, accompanied by the outflow of national capital outside the country, gives rise to many problems of an economic, social and psychological nature. Meanwhile, the integration of the Russian economy into the world economic space is an irreversible process. The principles and ethics of civilized business are penetrating deeper and deeper into the consciousness of a Russian entrepreneur and his daily business practice.
The state policy in relation to small and medium-sized businesses (in fact, as well as business in general) is also still far from perfect. The confrontation between the state and society most painfully responds to those who decide to start their own business, often from scratch, from scratch. These people have to live and work in a hostile environment. The feeling of insecurity gives rise to disbelief and apathy in some, while in others, on the contrary, it brings up character and fighting qualities - the key to the success of any undertaking. The underdevelopment of the business infrastructure in Russia, combined with the information impermeability and remnants of the country's long-term isolation from the rest of the world, in the minds of many entrepreneurs, makes it difficult to see that a new financial industry is already operating in Russia today - venture capital.
Venture or risk capital is an obscure phenomenon for the vast majority of Russians. It is confused with bank lending or charity. There is practically no information about the nature and activities of venture funds and companies, apart from a few confused notes in Moscow and St. Petersburg publications.
The name "venture" comes from the English "venture" - a risky venture or undertaking. "In the era of perestroika, joint ventures were also called "joint ventures", which, perhaps, would be more correctly translated as "joint venture." The term "risk" itself implies that there is an element of adventurism in the relationship between the capitalist-investor and the entrepreneur who claims to receive money from him.
At present, civilized economic relations are being formed in the Russian economy, the stock market is developing, the banking system is developing, large private enterprises are emerging and developing. The development of civilized market conditions based on private entrepreneurship leads to the formation of alternative sources of funds - venture investments - investments in high-risk projects, or venture innovation projects.
Venture entrepreneurship, facilitating the creation of new and modernization of existing industries based on the use of scientific and technological achievements, is a tool for developing and supporting the real sector of the economy, a means of accelerating the development of private innovative entrepreneurship, and a tool for positively influencing the national economy. Venture capital enterprises are the first enterprises (explerents) operating in the market of radical innovations. This applies to all sectors - biotechnology, telecommunications, communications, computer technology, industry, etc.
The purpose of this course work is to consider what venture financing is, features, essence, history of venture financing in Russia. Mechanisms, as well as trends and the possibility of its development in Russia.

1.Venture financing.
VENTURE FINANCING- allocation of funds from venture (risk) capital to small research or development firms for the development, refinement and implementation of innovations that are risky, but promising. As a rule, the owners of money capital, when making loans to inventors and entrepreneurs, cannot make claims to them regarding collateral for a loan or demand from them guarantees that they will enter the market with innovations at exactly the appointed time, make a profit and repay debts with interest.
One of the main sources of financing for innovative projects is venture capital.
Venture (risk) capital is a form of capital investment in investment objects with a high level of risk, counting on a quick high rate of return.
Venture capital is formed to finance venture companies, which are business cooperation between the owners of the company and the owners of venture capital to implement projects with a high degree of risk in order to obtain significant (above the market average) income.
Venture capital financing consists of financing investments in new areas of activity, therefore it is accompanied by high risk in exchange for generating significant income.
A venture enterprise is an enterprise whose activities are related to the development of new types of products, services, technologies that are unknown to the consumer, but have a great market potential, which is associated with a high degree of risk of their promotion on the market. However, the innovation of their activities provides a high income.
Venture financing is based on a preliminary assessment of the investment project, the activities and financial condition of the company implementing this innovative project.
Venture financing is carried out in the form of corporatization.
Venture funds are created to finance ventures. Venture fund investment resources are intended for venture capital companies that have a great chance of growing into large profitable enterprises. These odds come with a high risk.
Therefore, a venture fund is characterized by the distribution of risk between project initiators and investors.
One of the main ways to protect against investment risks is insurance. This applies to venture capital as well. The mechanisms for organizing insurance and guarantees of attracted investment resources for venture projects include the creation of a system of state risk insurance for venture investors.
The main principles of the venture fund are:
1) creation of a venture capital fund in the form of a partnership, in which the organizer is fully responsible for the use of the funds of the fund. For this, a business plan is being developed;
2) placement of venture fund funds for various projects with a risk degree of not more than 25% and with a return on investment period not exceeding 3-5 years;
3) "exit" of venture capital from a venture enterprise by turning it into an open joint-stock company with the placement of shares of a venture enterprise on the stock exchange or their sale to a large corporation.

1.1 Definition of venture financing.
There are many definitions of what venture capital is, but all of them in one way or another come down to its functional task: to promote the growth of a particular business by providing a certain amount of money in exchange for a share in the authorized capital or a certain block of shares.

A venture capitalist who runs a fund or company does not invest his own money in the companies in which he acquires shares.

venture capitalist - it is an intermediary between syndicated (collective) investors and an entrepreneur.

This is one of the most fundamental features of this type of investment. On the one hand, a venture capitalist independently decides on the choice of a particular object for investment, participates in the work of the board of directors and in every possible way contributes to the growth and expansion of the business of this company.
On the other hand, the final decision on the production of investments is made by the investment committee, which represents the interests of investors. Ultimately, the profits received by a venture investor belong only to investors, and not to him personally. He has the right to count only on a part of this profit if he has a part of the business.

These principles were laid down at the initial stage of venture capital formation by the founding fathers of this business - Tom Perkins, Eugene Kleiner, Frank Caufield, Brook Byers and others.

In the 1950s and 1960s, they developed new fundamental concepts for organizing financing: creating partnerships in the form of venture funds, collecting money from partners with limited liability and establishing rules for protecting their interests, using the status of a general partner. This organizational design of the investment process was innovative for America in the middle of the 20th century and created a very significant competitive advantage.

Tom Perkins himself described this process as follows: “Looking back, I think that what we invented then was right. First of all, we always remembered and were aware that our limited partners were the source of our capital, therefore, we initially developed a set of rules that protected their interests.For example, until today, no general partner can have a personal investment in a company that the partners may be interested in, even if they eventually abandon it. This principle ensures that there is no conflict between our personal interests and our interests as partners.Even if any of us, as a member of the board of directors at a reduced price, has the opportunity to purchase part of the shares, we are obliged to transfer them to our partners in order to they could also benefit from it.In addition, unlike other venture capital funds, we never reinvested profits.All profits were immediately distributed to our limited partners, and thus all our funds ceased to exist. Our investors liked it. Another principle was that the newly created funds did not have the right to invest in those companies where our earlier funds invested ... ".

These principles remain largely unchanged to this day. The organizational structure of a typical venture capital institution is as follows.
It can either be formed as an independent company or exist as an unregistered formation as a limited partnership (something like a "general" or "limited" partnership, to use Russian legal terminology). In some countries, the term "fund" is understood to mean an association of partners rather than a company as such. The directors and management staff of a fund may be employed by the fund itself, or by a separate "management company" or fund manager who provides services to the fund. The management company, as a rule, is entitled to an annual compensation (management charge), usually up to 2.5% of the initial obligations of investors (investor's initial commitments).

In addition, the management company or individuals, employees of the management staff, as well as the general partner. They can count on the so-called "carried interest" - a percentage of the fund's profit, usually reaching 20%. More often than not, this interest is not paid until investors have been fully reimbursed for their investment in the fund, plus a predetermined return on their investment.
In the case of a limited partnership, the founders of the fund and the investors are partners with limited liability. The general partner in this case is responsible for the management of the venture fund or exercises control over the work of the manager. Limited partnerships are tax free. This means that it is not subject to taxation, and its participants must pay all the same taxes that they would pay if their income or profits came directly from those companies in which they independently invested their funds.

1.2. Features of venture financing

Venture financing is associated with mutual investments in shares, that is, with risk and stock trading.
The venture capitalist does not invest directly in the company, but in its share capital, the other part of which is the intellectual property of the founders of the new company.
Investments are made in companies whose shares are not yet listed on the stock exchange.
Venture capital is directed to small high-tech companies focused on the development and production of new science-intensive products.
Venture capital is provided to new high-tech companies for the medium and long term and cannot be withdrawn by the venture capitalist at will until the end of the company's life cycle.
Venture funding is provided primarily to companies with growth potential, rather than to companies that are already generating high profits.
Venture capital is directed to support non-traditional (new, and sometimes completely original) companies, which, on the one hand, increases the risk, and, on the other hand, increases the likelihood of obtaining ultra-high profits.
Investing in venture capital specifically in exclusive small high-tech companies is dictated by the desire not only to receive higher incomes compared to investments in other projects, but also the desire to create new markets, occupying a dominant position in them.
Venture investments are not provided forever, but only for a certain time.
Venture financing is a kind of loan to new companies, a long-term loan without obtaining guarantees, but at a higher interest rate than in banks.
A venture capitalist, when investing in a new small company, must decide in advance how he is going to exercise his right to profit. In other words, it must determine how it will exit the investment at the end of the life cycle of the financed company (in 5-7 years).
As the company develops, its assets and liquidity increase both due to the emergence of demand for unquoted shares, and in connection with the emerging competition between those wishing to acquire a new profitable business.
The success of the development of an invested small company is determined by the growth in the price of its shares, the reality of a profitable sale of the company or part of it, as well as the possibility of registering the company on the stock exchange with subsequent profitable purchase and sale of shares on the stock market.
The mutual interest of the founders of the company and investors in the successful and dynamic development of a new business is associated not only with the likelihood of obtaining high incomes, but also with the opportunity to become a participant in the creation of a new progressive technology that stimulates the scientific and technological progress of the country.
The role of an investor in the successful development of a new company is not limited to the timely provision of venture capital, but includes simultaneously investing their business experience and business connections that contribute to the expansion of the company's activities, the emergence of new contacts, partners and markets.

1.3. Essence of venture financing.
To date, very few domestic firms and entrepreneurs practice raising venture capital. According to sociological surveys, only a small part of entrepreneurs has an idea about venture investment. An even smaller part has objective and reliable information about the mechanisms of venture capital investment. Therefore, it is necessary to popularize venture capital investment, train venture financing methods and attract venture capital.
Venture capital is an economic instrument used to finance the commissioning of a company, its development, takeover or buyout by an investor during a property restructuring. The investor provides the firm with the required funds by investing them in the authorized capital and (or) issuing a tied loan. For this, he receives an agreed share (not necessarily in the form of a controlling stake) in the authorized capital of the company, which he retains for himself until he sells it and receives the profit due to him.
The essence of venture capital is manifested through its functions, which include:
- Scientific and production function. It is aimed at promoting a technological breakthrough, at the development of innovative and business activity, which ultimately contributes to the economic innovative growth of economic systems.
- The function of commercialization of scientific, technical and innovative activities.
etc.................

The role and place of venture funds in solving social and economic problems. The main directions of the formation of the profitable part of venture funds and the direction of the use of funds. Venture company as a management body, goals and objectives.

VENTURE FINANCING

One of the main sources of financing for innovative projects is venture capital.

Venture (risk) capital- a form of capital investment in investment objects with a high level of risk, counting on the rapid receipt of a high rate of return. Venture capital is formed to finance venture companies, which are business cooperation between the owners of the company and the owners of venture capital to implement projects with a high degree of risk in order to obtain significant (above the market average) income.

Venture capital financing consists of financing investments in new areas of activity, therefore it is accompanied by high risk in exchange for generating significant income.

A venture enterprise is an enterprise whose activities are related to the development of new types of products, services, technologies that are unknown to the consumer, but have a great market potential, which is associated with a high degree of risk of their promotion on the market. However, the innovation of their activities provides a high income.

Venture financing is based on a preliminary assessment of the investment project, the activities and financial condition of the company implementing this innovative project. Venture financing is carried out in the form of corporatization.

Venture funds are created to finance ventures. Venture fund investment resources are intended for venture capital companies that have a great chance of growing into large profitable enterprises. These odds come with a high risk. Therefore, a venture fund is characterized by the distribution of risk between project initiators and investors.

One of the main ways to protect against investment risks is insurance. This applies to venture capital as well. The mechanisms for organizing insurance and guarantees of attracted investment resources for venture projects include the creation of a system of state risk insurance for venture investors.

The main principles of the venture fund are:

1) creation of a venture capital fund in the form of a partnership, in which the organizer is fully responsible for the use of the funds of the fund. For this, a business plan is being developed;

2) placement of funds of a venture fund for various projects with a risk degree of not more than 25% and with a return on investment period not exceeding 3–5 years;

3) "exit" of venture capital from a venture enterprise by turning it into an open joint-stock company with the placement of shares of a venture enterprise on the stock exchange or their sale to a large corporation.

Question 42. Foreign investments, their role in the country's economy.

Entrepreneurial investment . Direct, portfolio and other investments.

Direct foreign investments The rights of foreign investors in the management of an enterprise in the territory of another state.

Portfolio investment. The rights of the investor to receive income and control over investment objects.

Other investments.

Conditionality of quantitative boundaries between direct and portfolio investments in the world economy.

The priority importance of direct investments, their significant impact on national economies and international business in general. The role of foreign direct investment.

FOREIGN INVESTMENTS

Foreign investment allocate:

1) state foreign investments carried out by state budgets (state loans, loans, grants, financial assistance);

- private foreign investment - the investment of foreign investors in investment objects located outside the country;

- mixed foreign investments - investments carried out outside the country jointly by the state and private investors.

Direct foreign investment the acquisition by an investor of at least 10% of a share, shares (contribution) in the authorized (share) capital of a commercial organization established or newly established in the territory of the Russian Federation in the form of a business partnership or company in accordance with the law of the Russian Federation; capital investment in fixed assets of a branch of a foreign legal entity established in the territory of the Russian Federation; leasing equipment with a customs value of at least 1 million rubles by a foreign investor on the territory of the Russian Federation.

Portfolio foreign investment - capital investments in shares that do not give the right to investors to influence the activities of the enterprise, constituting less than 10% of the total share capital; investments in bonds, promissory notes, other debt obligations, state and municipal securities.

Other investments include deposits in banks, commodity loans, etc.

Among the listed types of investments, priority is given to foreign direct investment, as they have a beneficial effect on the development of the country's economy:

- contribute to the growth of investment activity in the country;

- stimulate investments in the renewal and development of the main production;

- contribute to the introduction of advanced management, achievements of science and technology in production;

- activate competition and stimulate the development of small and medium-sized businesses;

– ensure the growth of employment of the population, increase in incomes of the population;

- provide an increase in tax revenues to the budget of the host country, etc.

Despite the efforts of the Russian Federation, the state of the investment climate in the country cannot be considered attractive for foreign investors. The investment attractiveness of the Russian economy for foreign investors is provided by many qualitative parameters:

- an extensive national market, a wide variety of investment objects, which began with economic growth in the country;

- availability of highly skilled and relatively cheap labor force;

- the presence of a variety of rich natural resources;

– reforming the taxation system in terms of reducing the tax burden, etc.