Venture capital is always a risky business, but it can be well worth it if handled wisely. According to some assessments, 2017 looks like it will see some growth in terms of venture capital investing. This is a welcome change after some of the decline we saw in 2016, which has actually helped out a little in its own way.
Unicorns, or startup businesses valued at over $1 billion, began to be much more plentiful in recent years, but by late 2015, that growth decreased. Prior to that decline, unicorns were much sought after for investors, who hoped to profit from these companies’ success. This took away from the funds that investors might have put into smaller startups, leading to a shift in the economic climate.
These unicorn startups, having so much access to private funding, made little in the way of initial public offerings (IPO’s). As such, fewer startups went public, preferring instead to sell out to larger companies.
For many, 2016 may not be remembered with fondness, whether due to the various celebrity deaths, the election (regardless of which side you were on), or the decreased investments made in startups. Some of the ways 2016 hit venture investments were:
- Decreased funding for early stage startups
- Weak IPO in the tech sector, which turned many investors away
- Fewer startups being dubbed unicorns
While these may seem like they are purely detrimental, they could actually lead to some benefits for venture capitalists this year. The reason is this decline has led to a return to the roots of venture investing. In addition, many VC firms have been stockpiling capital that can be used this year.
Return to the Roots
So what are the roots of venture capital? Before the technology market was more or less flooded with unicorns, investors took risks on small startups that were still in their early formative stages. It was sort of a way of placing bets that such-and-such company would make it big, and then being either wrong or right as time went on.
In the face of highly valued unicorns that posed little risk to their investors, this practice declined, but it should see a return in 2017. This is a good thing. While this type of investing is highly risky, it has also historically led to the largest gains by investors in the past. By taking risks on smaller startups, venture capitalists can hope to see larger profits in the years to come, especially if their investment portfolio is well managed and healthily diverse.
Venture Capital Law
In order to be most effective, two things are necessary for venture capital. One, your portfolio needs to be well managed and highly diverse. Two, it needs to comply with federal and state standards. Legal matters such as disclosure and reporting of funds, limitations on advertising or solicitation, and due diligence research are all important to successful VC investing in 2017. Skilled business lawyers, such as those at Hart David Carson LLP, can help you get things set up for the new year.