engleski

VENTURE CAPITAL – FORM OF FINANCING

Small and medium enterprises (SMEs) are faced with the problem of raising initial capital for start-up the business. SMEs represent a high-risk investment for banks and other institutional investors, which therefore prefer to invest in large companies. Loan as traditional and most common form of corporate financing relies on companies that have long business history, which is a major constraint for newly established companies. Because of that, many of the small companies opt for alternative ways of collecting the necessary funds. The most popular types of alternative investments are: venture capital, hedge funds, real estate and commodities. In 2009, approximately 14% of total assets of institutional investors were invested in alternative types. Venture capital appears as an alternative form of investment, especially in technology-oriented small and medium enterprises. Venture capitalists besides financing offer, also, professional support that is very important to young entrepreneurs. In 2009 its share in all alternative investments was about 22%. Advantages of investing in alternative investments are that such investments can bring higher returns than traditional investments. The paper analyzes venture capital and its advantages and disadvantages compared to traditional investments. Paper also highlights the potential of venture capital with respect to its development in the U.S., Finland and Israel, and the possibilities for its increased in the EU.

venture capital; investment; alternative investment; SMEs

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