Page 9 - Special Issue Modern Trends in Scientific Research and Development, Case of Asia

International Journal of Trend in Scientific Research and Development (IJTSRD) @ www.ijtsrd.com eISSN: 2456-6470

As a result, the success of entrepreneurial firms often depends on whether they are able to find external investors willing to
fund their projects. In this chapter, we look at the role that independent venture capital (IVC) firms can play in connecting
entrepreneurs who have good ideas, but little capital, with investors who have money and are looking for good ideas. Investors
in IVC funds are generally institutions, such as endowments, foundations, pension funds, and sovereign wealth funds (SWFs),
whose commitments to IVC funds are motivated by expected financial returns. These investments should be distinguished from
corporate venture capital groups (CVC) that invest in startups to complement their internal Research and Development (R&D)
programs usually driven primarily by strategic considerations.

Total Investment activity (VC, PE, M&A) in fintech 2013-2018

2,165 2,196
1,925 1,893

1,543

1,132

$18.9 $45.4 $67.1 $63.4 $50.8 $111.8
2013 2014 2015 2016 2017 2018
Capital invested ($Billion) Deal count

Source: Pulse of Fintech 2018, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook)
January 4, 2019.
Note: refer to the Methodology section at the end of the document to understand any possible data discrepancies between this
edition and previous editions of The Pulse of Fintech.

Venture capital (VC), IVC, as well as CVC are exceptional valuations have already reached $1 billion or more. Thus,
sources of entrepreneurial finance; very few startups are although VC funding is small, its macroeconomic impact is
backed by VC funding. In the United States, the cradle of significant.
venture investing and by far the deepest VC market
worldwide, only about one startup firm out of 500 receives Venture capital funds typically focus on funding tech startups
venture capital. On the other hand, those companies that do in two broad industry groups:
receive VC funding make up a disproportionally large share 1) Information Technology (IT)
of companies that undergo initial public offerings (IPOs). Of 2) medical/health/life science.
all the U.S. companies that made it to the public stage
between 1980 and 2015, 37% were VC-backed; for Investments in startups operating in these areas accounted
technology IPOs, this ratio was 58% (Ritter, IPO database, for 88% of all VC deals in the United States in 2015, although
2016). Gornall and Strebulaev (2015) estimate that public these sectors represented less than 20% of U.S. GDP.
companies in the United States that previously received VC
funding account for one-fifth of the market capitalization and A key concern for foreign VC firms venturing into emerging
44% of the R&D spending of U.S. listed companies . This set markets has been the legal protection of their investments.
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of companies includes some of the world’s largest and most Lerner and Schoar found that in structuring deals in low-
innovative companies, such as Adobe Systems Inc., enforcement countries, venture capitalists have often relied
Amazon.com Inc., Apple Inc., Cisco Systems Inc., eBay Inc., on equity and board control as opposed to convertible
Facebook Inc., Genentech Inc., Google (Alphabet Inc.), preferred stock with covenants, a more common form in
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Microsoft Corp., Skype, and Yahoo! Inc. While all these high-enforcement countries . At the same time, foreign VC
companies are publicly listed, venture capitalists have also firms have put significantly more emphasis on implicit
funded today’s “unicorns”—tech companies such as Uber relationships. Such relationships played a particular role in
Technologies Inc., Airbnb Inc., Palantir Technologies Inc., and syndicated transactions with local venture capitalists in
Pinterest Inc. that are still privately held but whose countries where an indigenous VC industry had already
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emerged .

17 Gornall, W., Strebulaev, I.A., 2015. The economic impact of
venture capital: evidence from public companies. Unpublished
Working Paper. Stanford University. 18 Lerner, J., Schoar, A., 2005. Does legal enforcement affect
https://www.Gsb.Stanford.Edu/ Faculty-research/working- financial transactions? The contractional channel in private
papers/economic-impact-venture-capital-evidence-public- equity. Q. J. Econ. 120, 223–246.
companies. 19 Allen, F., Song, W.-L., 2003. Venture capital and corporate
governance. In: Cornelius, P., Kogut, B. (Eds.), Corporate

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