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Investors Increasingly Seeking Refuge From Volatile Market In Venture Capital

Written by Ken Gaebler
Published: 7/16/2009

Venture capital is looking like an increasingly attractive vehicle for investors, but it is a complicated endeavor for entrepreneurs.

Disheartened by the falling stocks and slumping real estate prices that dominate the financial news, many investors are finding that the most attractive investment may be private businesses, SmartMoney magazine reported.

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Many investors have ventured into the venture capital sector, which lately has been providing higher returns than the Dow Jones Industrial Average - angel investors posted returns of 22 percent in 2008, said the Center for Venture Research.

Though deemed a more stable investment than traditional investment vehicles right now, venture capital is by no means safe - bankruptcies accounted for 26 percent of the angel exits in 2008, the center found, while mergers and acquisitions claimed 70 percent and IPOs represented 4 percent.

Though promising news, for entrepreneurs the situation is not all positive. Competition is stiff for VC funding, and it typically has strings attached - many venture capitalists have strict benchmarks, demands for transparency, and shareholding requirements, the magazine reported.

Less than 1 percent of new employer businesses created in the U.S. every year obtain venture capital financing, said the Ewing Marion Kauffman Foundation.

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