Why does a company use venture capital to bring it to the market - Dissertation Example

Venture capitalists are those who plunge at the rescue of companies when they need it the most and hence bail them out of an impending crisis owing to a financial crunch. These venture capitalists are virtually risk lovers who offer their resources to companies with a high growth potential but which are involved in innovative practices not considered secure according to conventional thoughts. They invest merely to test their luck and speculative powers. However, recently this trend has taken a U-turn with most of the venture capitalists opting for companies with an already established brand name backing them and searching for investors for new product development or market expansion in different regions.

But, the function of venture capitalists is still largely recognised as one that helps push a new entrant to the market and distinguish its position. The present paper attempts to illustrate the fact through the experiences of senior managers employed at a Chinese company. 1.1 Background Venture capital has emerged as an intermediary, with a significant clout in the financial markets, facilitating access of capital to the firms facing difficulty in raising funds. These firms, mainly in their nascent stage, are beset by high uncertainty levels, possess limited tangible assets and these firms function in a highly dynamic markets.

Venture capital is often touted as one that fuelled innovation in American economy and as an industry that fuelled the rise and fall of the era of ‘internet’. The research conducted on the dramatic growth and decline in this industry has shown that the venture capital industry, though smaller in size than the public markets, has succeeded in exercising a positive influence on the general economic environment. The venture capital industry is essentially an American phenomenon with its origin in “family offices” entrusted with the task of managing the wealth of high profile individuals.

With time these families hired professional managers from outside to oversee and monitor such investments. The venture capitalists invest funds in nascent business firms. Most of these firms have limited cash resources and a majority of them are subject to strict credit rationing. Besides, these firms are characterised by information asymmetries and high levels of