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High rise in venture capitalism

Marketplace Staff Jul 19, 2010

High rise in venture capitalism

Marketplace Staff Jul 19, 2010


Steve Chiotakis: We’ve got a study today that found venture capitalists funneled a lot more money into American start-up companies. Dow Jones VentureSource says investments between April and June shot up 53 percent over last year. That’s the most money invested in startups since the third quarter of 2008. What does it all mean?

Jessica Canning is global research director for Dow Jones VentureSource. She’s with us live from San Francisco. Hi Jessica.

Jessica Canning: Hi Steve, how are you doing?

Chiotakis: Doing well. So what’s driving this increase? What kind of investments are growing?

Canning: For the most part, it’s because of the increased economic stability paired with a stronger liquidity environment, which had really sidelined venture investors over the past year.

Chiotakis: Liquidity. When I hear liquidity, I start to fall asleep. So what does that mean, does that mean there’s a lot of capital in the market, a lot of money out there?

Canning: That’s essentially IPOs and acquisitions are finally starting to take place again. The IPO window is starting to open up with companies like Tesla coming through. So that’s what venture investors, that’s how they get their returns.

Chiotakis: We know that it’s bound to be good for the U.S. economy long term, all this investment — but what about jobs? Can these investments turn into jobs?

Canning: They actually turn immediately and directly into jobs. These are brand new companies that didn’t exist before, and also, jobs that didn’t exist before. So they’re not even re-hire jobs, they’re really brand new jobs in the economy.

Chiotakis: What can we expect, do you think, from venture capital over the next year or so?

Canning: Although it is difficult to say right now, because there continues to be some economic certainty, the fact that venture investors raised over $7.5 billion in funds in the first half of this year, which is an increase over last year, they are going to put that capital into play right away.

Chiotakis: They’re going to put that capital… So what’s the process? Take us through real quick the process.

Canning: So essentially, venture investors have to raise money from their limited partners, which tend to be pension funds, and they raise a fund, which usually has a life span of about 10 years, and start investing over the life cycle of that fund for 10 years into privately held companies.

Chiotakis: And that’s how they do it, and they make that transfer…

Canning: And then they make the return when the company goes public or gets acquired.

Chiotakis: Interesting. Alright, Jessica Canning from Dow Jones VentureSource, the source of this study. Thank you so much for joining us.

Canning: Thank you Steve.

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