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Understanding Venture Capital Firms and Financial Conglomerates in Today's Market

This chapter delves into the roles and functions of venture capital firms and finance companies in the financial landscape. Venture capital firms invest in startups, often providing not just capital but also management expertise. They typically operate as limited partnerships, attracting funds from wealthy individuals and institutions. Finance companies, as market intermediaries, provide various loan types while facing risks such as default and liquidity. The chapter also discusses the impact of financial conglomeration and ongoing market trends, providing insights into the evolving finance sector.

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Understanding Venture Capital Firms and Financial Conglomerates in Today's Market

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  1. Chapter Twenty Venture Capital Firms, Finance Companies, and Financial Conglomerates

  2. Venture Capital Firms • These firms provide funds for start-up companies • Often become very involved with firm management and provide expertise

  3. Venture Capital Investments

  4. Venture Capital Disbursements

  5. Top 20 Venture Capital Firms

  6. Venture Capital Firm Organization • Most are limited partnerships • Source of capital includes wealthy individuals, pension funds, and corporations • Investors must be willing to wait years before withdrawing money

  7. Life of Venture Capital Deal • Fundraising • Venture firm solicits commitments, usually less than 100 per deal • Investment phase • Seed investing • Early stage investing • Later stage investing • Exit • Usually IPO as merger National Venture Capital Association (click on Industry Research) http://www.nvca.com

  8. Purpose of Finance Companies • They are money market intermediaries • Borrow in large amounts (commercial paper) and invest in small amounts (loans)

  9. Risk in Finance Companies • Default Risk • Liquidity Risk

  10. Types of Finance Companies • Business Finance Companies • Factoring • Leasing • Floor Plan Loans • Consumer Finance Companies • Sales Finance Companies • Captive Finance Company

  11. Finance Company Loans Figure 20-4: Types of Loans Made by Finance Companies, 2001

  12. Different Types of Business Loans Figure 20-5: Types of Business Loans Made by Finance Companies (end of 2001)

  13. Finance Company Business Loans Outstanding Figure 20-6: Finance Company Business Loans, 1991–2001

  14. Commercial Paper Placed by Finance Companies Figure 20-8: Commercial Paper Placed by Finance Companies, 1989–2001

  15. Finance Company Balance Sheet

  16. Growth in Finance Companies, 1979-1998 Figure 20-9: Growth of Finance Company Assets, 1980–2001 Current statistics on finance companies http://www.federalreserve.gov/releases/g20

  17. Financial Conglomeration • Economies of Scale • Economies of Slope • Many conglomerate mergers are being reversed

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