Venture capital is a monetary sum provided by investors to fund start-up companies with excellent potential for rapid growth and a commensurate amount of risk. A venture capital fund is a professionally-managed pool of money that finances these high-risk, potentially high-reward companies or projects. Typically, managers of venture capital funds have extensive experience and background in specific high-technology industries and/or finance.

Venture capital investors provide capital for startup companies or companies seeking to expand, organize or reorganize, acquire or be acquired, or go public. Unlike traditional investment activities such as the trading of public securities, venture capitalists invest in private companies with the knowledge and expectation that their investment is long-term (typically 5 to 7 years). Beyond providing capital, venture investors often assist start-up companies in the development of new products or services, adding value to the company through active participation in the management of the company and contributing experience and knowledge.

In general, venture capital funds serve the following functions:

Financing rapid-growth high technology startup companies
Making equity investments in high technology startup companies
Assisting these companies in the development of new products and services by providing  management support and sales/distribution channels
Adding value through active participation in strategy and operations of portfolio companies
Taking higher risks with the expectation of higher returns

Long Term Investment Planning
Venture fund management teams invest in high technology startup companies that possess potential of rapid growth. In order to manage the higher levels of risk associated with these investments, fund managers will typically create a diversified portfolio of investments in companies in different industries, with different products, at different stages of growth.

Most venture funds choose to co-investwith other venture funds or investment entities as another way of managing or sharing risk. In most cases, the amount of equity a venture fund holds in a single portfolio company is not very high. In the past, the percentage of shares a Taiwan venture fund could hold in a portfolio company was regulated. Although this is no longer the case, it is still unlikely for a venture fund to be the majority or sole shareholder of a technology company due to risk management considerations.

In Taiwan’s venture capital market, leveraged buyouts (LBOs) and mergers and acquisitions (M&As) are rare. Therefore, venture funds generally hold their equity in portfolio companies until the companies go public. Venture-backed companies that later went public include D-Link, United Semiconductor, Acer, ZyXEL, Macronix, Inventec, TSMC, Winbond, Accton, MediaTek, BenQ, Altek, and Radiant Opto-Electronics.