The birth of venture capital is generally considered to have immediately followed the end of the second world war. In 1946 Harvard economist Georges Doriot set up a fund to provide capital for the commercial applications of new technologies developed for the war effort. This began VC’s close association with innovation and the important role it has played in driving technological advances.
The nature of VC has meant that young companies with a huge growth potential, but a large risk factor, have had access to funding despite having little or no access to typical lines of credit. Nowhere has this been seen more clearly than in the West Coast tech booms of the 1980s and ‘90s. Largely funded by US banks based in the North East, by the early 1990s almost half of investment dollars went into tech.
Influential firms like Davis and Rock helped to fund some of the biggest tech companies, including Apple and Intel. For companies that do not yet have sufficient cash flow to raise significant capital, VC has proved a pivotal method of funding to sustain their growth potential and to stay ahead in a very competitive sector.
But it is not just access to capital that is so crucial for startups and entrepreneurs. Research has indicated that the ‘capital’ in venture capital is not the most important factor in encouraging technological advancement. Instead, it is the mentorship and management intensive nature of VC, that nurtures young entrepreneurs and novel technologies, which rapidly accelerates technological innovation.
Entrepreneurs readily seek out venture capitalists with invaluable market experience who can play a constructive role in expediting their growth journey. When the day to day running of companies can often prevent or delay the hiring of key-management positions or the development of critical strategy, VC mentors can provide this invaluable stewardship at a pivotal time. In fact evidence suggests that what makes venture capital such a unique and significant growth engine is the timely nature of its support. Receiving the right funding and support at the right times requires immense flexibility and requires a distinctly hands on approach.
With 2022 figures showing a downturn in VC funding for startups as investors triage their portfolios, now is pivotal time for entrepreneurs. In many cases, only mature startups could continue to receive funding as they are seen as the safest bet. Limited partners require liquidity to fund their VC interests, and this liquidity is based on their ability to realise other investments in their portfolios. In the current climate of rising interest rates there are also other low risk alternatives that many limited partners can turn to in lieu of VC ventures.
All told, the ability of VC firms to continue funding the entrepreneurs and startups of tomorrow will help determine the vitality of innovation in the coming years. With so many high growth options waiting for funding, now is a time of huge opportunity if cash flow can be sustained. For this reason, Velocity Group’s 2021 introduction of Velocity Juice can play a pivotal role in providing nuanced, scalable funding that suits a company’s needs at every stage. This cost effective funding method, with no equity dilution, can supercharge the growth of investee companies by providing tailored injections of capital combined with the Velocity Group’s invaluable marketing expertise. This increased flexibility in Velocity Group’s approach will drive continued potential in an increasingly difficult environment.
