Venture capital (VC) companies invest in the products and services consumers use every day, from booking accommodation through VRBO to purchasing groceries through Instacart. Venture capital companies fund and mentor young or emergent start-up companies with high growth potential. Commonly, these are firms with an innovative product or business model in information technology, biotechnology, or clean technology. Unlike private equity firms, VC companies tend to take a minority stake of 50% or less for each investment they make. These investments have a high risk of failure, so venture capital firms invest in a portfolio of companies with the expectation that at least one will become successful.
Sequoia Capital
Sequoia Capital is a California-headquartered venture capital firm that invests in the mobile, internet, energy, media, and retail sectors. Since it was founded in 1972, the company claims early-stage involvement in companies with a now aggregate public market value of $3.3 trillion. Some of the more notable companies Sequoia Capital invested in include Instagram, Zoom, Oracle, Apple, LinkedIn, and WhatsApp.
DST Global
DST Global is a venture capital firm founded in 2009 by Russian entrepreneur Yuri Milner. The company has offices in New York, London, Beijing, Hong Kong, and Silicon Valley.
DST Global is one of the world’s leading internet investment companies, with investments in Alibaba, Spotify, Twitter, Facebook, Acorns, DraftKings, Klarna, Slack Technologies, and Robinhood.
Tiger Global Management
Tiger Global Management is a New York City-based investment firm specializing in consumer, financial technology, internet, and software companies.
Tiger Global Management tends to focus on growth-oriented private companies with an emphasis on American, Chinese, and Indian businesses. The firm prefers to partner with dynamic entrepreneurs in charge of market-leading growth companies.
Notable investments, which range from Series A to pre-IPO funding, include Glassdoor, GitLab, Square, Quora, and Postmates.
Y Combinator
Y Combinator is an American tech start-up accelerator founded in March 2005 by Paul Graham, Jessica Livingston, Robert Morris, and Trevor Blackwell. The company’s accelerator program is well known amongst start-ups, having funded over 3,000 ventures to date.
Y Combinator interviews and selects two or more intakes of companies on an annual basis. Successful applicants receive seed funding, professional advice, and industry connections in exchange for Y Combinator taking a 7% stake.
Recent accelerator program graduates include Women Who Code, Brex, Rappi, and Upsolve.
Kleiner Perkins
Kleiner Perkins is an American VC firm with a preference for incubation, early-stage, and growth companies. The company was founded in 1972 by Eugene Kleiner, Thomas Perkins, Frank J. Caulfield, and Brook Byers. The New York Times described Kleiner Perkins as “perhaps Silicon Valley’s most famous venture firm”.
To that end, Kleiner Perkins has been an early investor in companies such as Amazon, Compaq, Google, Nest, Sun Microsystems, Slack, Zynga, Modern Health, DJI, and Coursera.
Key takeaways
Venture capital companies fund and mentor young or emergent start-up companies with high growth potential. Unlike private equity firms, VC companies tend to take a minority stake of 50% or less for each investment they make.
Sequoia Capital is a firm that has invested in early-stage growth companies now worth a combined $3.3 trillion. Tiger Global Management prefers to partner with entrepreneurs running market-leading businesses from Series A to pre-IPO funding.
Y Combinator runs a tech accelerator program that offers specialized knowledge and industry contacts to start-ups in exchange for a 7% stake. Kleiner Perkins is perhaps the most notable VC firm, investing hundreds of millions of dollars into social, clean technology, and smartphone innovation start-up funds.
The circle of competence describes a person’s natural competence in an area that matches their skills and abilities. Beyond this imaginary circle are skills and abilities that a person is naturally less competent at. The concept was popularised by Warren Buffett, who argued that investors should only invest in companies they know and understand. However, the circle of competence applies to any topic and indeed any individual.
Economic or market moats represent the long-term business defensibility. Or how long a business can retain its competitive advantage in the marketplace over the years. Warren Buffet who popularized the term “moat” referred to it as a share of mind, opposite to market share, as such it is the characteristic that all valuable brands have.
The Buffet Indicator is a measure of the total value of all publicly-traded stocks in a country divided by that country’s GDP. It’s a measure and ratio to evaluate whether a market is undervalued or overvalued. It’s one of Warren Buffet’s favorite measures as a warning that financial markets might be overvalued and riskier.
Venture capital is a form of investing skewed toward high-risk bets, that are likely to fail. Therefore venture capitalists look for higher returns. Indeed, venture capital is based on the power law, or the law for which a small number of bets will pay off big time for the larger numbers of low-return or investments that will go to zero. That is the whole premise of venture capital.
Foreign direct investment occurs when an individual or business purchases an interest of 10% or more in a company that operates in a different country. According to the International Monetary Fund (IMF), this percentage implies that the investor can influence or participate in the management of an enterprise. When the interest is less than 10%, on the other hand, the IMF simply defines it as a security that is part of a stock portfolio. Foreign direct investment (FDI), therefore, involves the purchase of an interest in a company by an entity that is located in another country.
Micro-investing is the process of investing small amounts of money regularly. The process of micro-investing involves small and sometimes irregular investments where the individual can set up recurring payments or invest a lump sum as cash becomes available.
Meme stocks are securities that go viral online and attract the attention of the younger generation of retail investors. Meme investing, therefore, is a bottom-up, community-driven approach to investing that positions itself as the antonym to Wall Street investing. Also, meme investing often looks at attractive opportunities with lower liquidity that might be easier to overtake, thus enabling wide speculation, as “meme investors” often look for disproportionate short-term returns.
Retail investing is the act of non-professional investors buying and selling securities for their own purposes. Retail investing has become popular with the rise of zero commissions digital platforms enabling anyone with small portfolio to trade.
Accredited investors are individuals or entities deemed sophisticated enough to purchase securities that are not bound by the laws that protect normal investors. These may encompass venture capital, angel investments, private equity funds, hedge funds, real estate investment funds, and specialty investment funds such as those related to cryptocurrency. Accredited investors, therefore, are individuals or entities permitted to invest in securities that are complex, opaque, loosely regulated, or otherwise unregistered with a financial authority.
Startup valuation describes a suite of methods used to value companies with little or no revenue. Therefore, startup valuation is the process of determining what a startup is worth. This value clarifies the company’s capacity to meet customer and investor expectations, achieve stated milestones, and use the new capital to grow.
Profit is the total income that a company generates from its operations. This includes money from sales, investments, and other income sources. In contrast, cash flow is the money that flows in and out of a company. This distinction is critical to understand as a profitable company might be short of cash and have liquidity crises.
Double-entry accounting is the foundation of modern financial accounting. It’s based on the accounting equation, where assets equal liabilities plus equity. That is the fundamental unit to build financial statements (balance sheet, income statement, and cash flow statement). The basic concept of double-entry is that a single transaction, to be recorded, will hit two accounts.
The purpose of the balance sheet is to report how the resources to run the operations of the business were acquired. The Balance Sheet helps to assess the financial risk of a business and the simplest way to describe it is given by the accounting equation (assets = liability + equity).
The income statement, together with the balance sheet and the cash flow statement is among the key financial statements to understand how companies perform at fundamental level. The income statement shows the revenues and costs for a period and whether the company runs at profit or loss (also called P&L statement).
The cash flow statement is the third main financial statement, together with income statement and the balance sheet. It helps to assess the liquidity of an organization by showing the cash balances coming from operations, investing and financing. The cash flow statement can be prepared with two separate methods: direct or indirect.
The capital structure shows how an organization financed its operations. Following the balance sheet structure, usually, assets of an organization can be built either by using equity or liability. Equity usually comprises endowment from shareholders and profit reserves. Where instead, liabilities can comprise either current (short-term debt) or non-current (long-term obligations).
Capital expenditure or capital expense represents the money spent toward things that can be classified as fixed asset, with a longer term value. As such they will be recorded under non-current assets, on the balance sheet, and they will be amortized over the years. The reduced value on the balance sheet is expensed through the profit and loss.
Financial statements help companies assess several aspects of the business, from profitability (income statement) to how assets are sourced (balance sheet), and cash inflows and outflows (cash flow statement). Financial statements are also mandatory to companies for tax purposes. They are also used by managers to assess the performance of the business.
Financial modeling involves the analysis of accounting, finance, and business data to predict future financial performance. Financial modeling is often used in valuation, which consists of estimating the value in dollar terms of a company based on several parameters. Some of the most common financial models comprise discounted cash flows, the M&A model, and the CCA model.
Business valuations involve a formal analysis of the key operational aspects of a business. A business valuation is an analysis used to determine the economic value of a business or company unit. It’s important to note that valuations are one part science and one part art. Analysts use professional judgment to consider the financial performance of a business with respect to local, national, or global economic conditions. They will also consider the total value of assets and liabilities, in addition to patented or proprietary technology.
A financial option is a contract, defined as a derivative drawing its value on a set of underlying variables (perhaps the volatility of the stock underlying the option). It comprises two parties (option writer and option buyer). This contract offers the right of the option holder to purchase the underlying asset at an agreed price.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
