Asian venture capital: financing risk opportunities in the Pacific Rim - Essay Example

Hong Kong has always been rated as one of the most free economies, even though it went through the change of government i.e. from Britain to China. Taiwan has had its share of political instability and outright threats of invasion from China but has lead the way in semiconductor and integrated circuit manufacturing. Perhaps the biggest surprises are the giants that started emerging in early 1990s, China and India. China changed from socialist economy to a mixed market and still faces a big challenge of balancing controlled economy with capitalistic economy while turning into the manufacturing unit of the world.

India developed into the back office of the world due to its human resource skilled in information technology and faces the challenge of reducing its dependency on services. These countries represents can easily be termed as drivers of Pacific Rim GDP due to their size and dependencies of other, smaller economies on them. For this purpose the focus of this analysis is on above mentioned countries. Venture capital refers to investment activity in an unproven business venture which may be a startup companies, or companies focusing on new or turnaround ventures.

Such investment typically entails high risk for the investor but has the potential for above average returns. Investment funds may be provided by wealthy individual investors, professionally managed investment funds, government backed Small Business Investment Corporations (SBICs), or subsidiaries of investment banking firms, insurance companies, or corporations. In exchange for their funds, venture capital organizations usually require a percentage of equity ownership of the company, some measure of control over its strategic planning, and payment of assorted fees.

Due to the highly speculative nature of their investments, venture capital organizations expect a high rate of return. In addition, they often wish to obtain this return over a relatively short period