Simply put, venture financing is the supply of high risk capital to developing enterprises. Unlike low risk financing, such capital is not secured by assets and is most commonly provided as an equity investment (common or preferred shares) and as convertible debt or debt to which equity is otherwise attached. Venture financing is also distinguished by its residence in deals for long duration, usually three to ten years, and hence, is known as "patient" capital.
Developing enterprises - seed projects, start-ups, early stage and growing firms, rapid expansions, companies undergoing restructuring and buyouts, turnarounds, etc. - rely heavily on venture capital to facilitate their special long-term requirements. Such industrial activity always carries risk, sometimes because a product idea is in its infancy or because firm assets are intangible and, consequently, are not seen as being suitable for conventional financial backers. It could be also that the pace of firm growth is exceptionally fast.
Venture capitalists do not just supply money. As temporary shareholders, they bring other crucial resources of knowledge, experience, infrastructure, and networks to developing enterprises. They are active investors, taking seats on boards of directors of investee firms and providing expert guidance on matters of business strategy and financial management. Venture professionals are frequently sought for these very qualities, especially those that have backgrounds in certain sectors, such as high technology, as they add tremendous value to the growth process. For this reason, venture capital is also known as "knowledgeable" capital.
The number and types of institutional participants in the venture capital market has steadily increased over the years. Principally, these are private independent firms, the subsidiaries of corporate organizations or financial institutions, and institutions operated by government or supported by it. The latter category has been defined by Canadian venture capital expert Mary Macdonald as "hybrids" and encompasses labour-sponsored funds, though there are other significant hybrid varieties situated mostly in the western provinces.Endnote 11
Increasingly, venture financing is being acknowledged as indispensable to new generations of companies and jobs in a changing Canadian economy. The resource and structural needs of a struggling venture capital market of the 1980s and 1990s served as a primary impetus for Canadian government legislative and monetary aid of labour- sponsored funds as an alternative to direct government intervention.
Prior to 1990, the presence of labour-sponsored funds in Canada's venture capital market was almost exclusively that of a young Fonds de solidarité. However, in subsequent years, the dramatic climb in the assets, shareholders and investment activity of the Fonds de solidarité, and the appearance of Working Ventures, Working Opportunity and the Crocus Fund, this picture was completely altered. By 1994, labour-sponsored funds had become a formidable collective force in the market.