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Venture capital

From Simple English Wikipedia, the free encyclopedia

Venture capital is a type of private equity capital.[1]

Typically it is provided by outside investors to new businesses that promise to grow fast, such as start-up companies. Venture capital investments are usually high risk, but offer the potential for higher returns than other investments.

A venture capitalist (VC) is a person who makes such investments. A venture capital fund is a pooled investment vehicle (often a limited partnership) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans.

Venture capital can also include managerial and technical expertise. Most venture capital comes from a group of rich investors, investment banks and other financial institutions that pool such investments or partnerships. This form of raising capital is popular among new companies, or ventures.

Venture Capital firms can go public after they have reached a certain stage of growth. Given that Venture Capital firms are financial investors in portfolio companies, they are expected to add value.

Geographical differences

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United States

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Quarterly U.S. venture capital investments between 1995 and 2017
Quarterly U.S. venture capital investments, 1995–2017

The United States has the world's largest venture capital market. Venture capital investment reached a record US$321.6 billion in 2025. Investment stayed high in 2026, mainly because of large investments in artificial intelligence (AI) companies.[2]

Australia and New Zealand

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Venture capital began to grow in Australia in the 1970s. One of the first venture capital firms was IVC, founded by Bill Ferris in 1970.[3] The industry grew during the 2010s. By the early 2020s, Australia and New Zealand had more than 100 venture capital funds, investment syndicates, and angel investors.[3]

In 2021, startups in Australia and New Zealand raised more than A$10 billion in 682 investment deals. This was more than three times the amount raised in 2020.[4]

Switzerland

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Many start-up companies in Switzerland come from universities. Many were started by students or researchers from the federal institutes of technology in Lausanne and Zurich.[5]

A study by the London School of Economics looked at 130 spin-off companies from ETH Zurich over 10 years. It found that about 90% of them were still operating after their first five years.[6] Some of the most active early-stage investors in Switzerland include the Zurich Cantonal Bank, investiere.ch, Swiss Founders Fund, and angel investor groups.[7]

In 2022, start-up companies in Switzerland received about 4 billion Swiss francs in investment. About half of the money went to information and communications technology (ICT) and fintech companies. About 21% went to cleantech companies.[8]

History

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The origins of venture capital are in the United States. After World War II, companies such as the American Research and Development Corporation (ARDC) were founded to invest in new businesses on a larger scale.[9]

Germany

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The first German venture capital company was founded in West Germany in 1975. By 1988, there were 40 such companies. In 1987, about 1.2 billion Deutsche Mark (DM) had been raised as venture capital. About 540 million DM of this was invested, mainly in high technology, electronics, and microelectronics.

In December 1987, 12 venture capital companies in West Berlin founded the German Venture Capital Association (DVCA). The companies had about 600 million DM available and invested about 120 million DM. Banks and industrial companies were the main sources of the money. In December 1989, the DVCA merged with the Federal Association of German Capital Investment Companies (BVK), which had been founded in West Berlin on 29 January 1988.

After 2005, Berlin became an important center for venture capital investments.[10]

From 2021, the German federal government made at least €10 billion available through the Zukunftsfonds (Future Fund) to support investments in future technologies.[11]

Switzerland

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In the middle of the 1990s, the Swiss Parliament discussed a possible lack of venture capital in Switzerland. In 1996, an initiative was started to create incentives for investors. In 1997, a proposal was made for a federal law on venture capital companies that would have been valid for ten years.[12]

The situation changed greatly when the Internet sector began to grow rapidly and the venture capital sector developed quickly. On 1 May 2000, the Federal Act on Venture Capital Companies (BRKG) came into force. It introduced incentives for investment structures and rules for private investors known as business angels.[13] The easier access to venture capital was intended to encourage the creation of new companies by supporting their investors rather than the companies themselves.[13]

New companies often make losses during their first years. As a result, taxes are usually not a major cost for them. The law therefore provided tax benefits for venture capital companies and business angels.[13]

However, the law did not produce the expected results. The tax incentives were considered too small. The effect on investment returns was also considered insufficient. The tax benefits for wealthy private individuals acting as business angels provided little or no incentive to invest.[13] For new companies, the main problem was also not the availability of venture capital, but the relatively low level of risk-taking in Swiss business culture.[13]

In the following years, several measures were introduced to improve the economic conditions for businesses. These included the Collective Investment Schemes Act and Corporate Tax Reform II.[14] Additional tax incentives were also introduced.

Other websites

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  • Raghupathy, M. B.; Thillairajan, A. (2015-05-31). "Financial Value Creation: A Comparative Study of VC-Backed IPOs and Non-VC-Backed IPOs in India". The Journal of Private Equity (Retired). 18 (3): 55–71. doi:10.3905/jpe.2015.18.3.055. ISSN 1096-5572. S2CID 154642807. Archived from the original on 2023-04-08. Retrieved 2023-04-08.
  • National Venture Capital Association
  • Venture Capital Glossary Archived 2007-09-29 at the Wayback Machine
  • Ricafe2 Archived 2007-10-05 at the Wayback Machine - A Research programme sponsored by the European Commission analysing venture capital.
  • Venture Capital News & Blog:

References

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  1. ↑ "What Is Venture Capital? Definition, Pros, Cons, and How It Works". Investopedia. Retrieved 2025-02-21.
  2. ↑ "United States: Q2'26 Venture Pulse Report". KPMG. Retrieved July 28, 2026.
  3. 1 2 Marshall, Dr Larry; Daroczy, Jenna (2023). Invention to Innovation. CSIRO Publishing.
  4. ↑ "$10 billion flows to Australian start-ups in banner year". The Sydney Morning Herald. 2022-02-28.
  5. ↑ Wagner, Steffen (June 20, 2011). "Bright sparks! A portrait of entrepreneurial Switzerland" (PDF). Swiss Business. Archived from the original (PDF) on May 2, 2013. Retrieved August 6, 2026.
  6. ↑ Oskarsson, Ingvi; Schläpfer, Alexander (September 2008). "The performance of Spin-off companies at the Swiss Federal Institute of Technology Zurich". ETH transfer. Archived from the original on 2014-02-02. Retrieved 2026-08-06.
  7. ↑ "Most active Early Stage Investors in 2013". Startupticker.ch. March 21, 2014.
  8. ↑ "Swiss Venture Capital Report 2023" (PDF). startupticker.ch. JNB Journalistenbüro.
  9. ↑ [... "..."] {{cite web}}: Check |url= value (help)
  10. ↑ "The biggest and most important startup investors from Germany, Austria and Switzerland". deutsche-startups.de. Retrieved 7 October 2025.
  11. ↑ "Zukunftsfonds". Bundesministerium für Wirtschaft und Energie. Retrieved 27 September 2025.
  12. ↑ Risikokapital in der Schweiz (PDF) (Report). Staatssekretariat für Wirtschaft (SECO). 8 June 2012. Archived from the original (PDF) on 24 June 2021. Retrieved 20 June 2021.
  13. 1 2 3 4 5 Risikokapital in der Schweiz (PDF) (Report). Staatssekretariat für Wirtschaft (SECO). 8 June 2012. Archived from the original (PDF) on 24 June 2021. Retrieved 20 June 2021.
  14. ↑ Willimann, Markus (1 October 2012). "Risikokapital in der Schweiz: Problemfelder und Massnahmen". Retrieved 20 June 2021.
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