Текст книги "Английский язык. Практический курс для решения бизнес-задач"

Автор книги: Нина Пусенкова

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Lesson 19
New Industry

Read and translate the text and learn terms from the Essential Vocabulary.

Venture capital

Venture capital (VC) is capital provided by outside investors for financing of new, growing or struggling businesses. A venture capital fund is a pooled investment vehicle that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans.

Venture capital differs substantially from ‘traditional’ financing:

– Funding provided to new firms with potential for above-average growth.

– Often provided to startup and other emerging enterprises because they lack the collateral, track record, or earnings required to get a loan.

– The investment, typically requiring a high potential of return, is structured so that it can be liquidated within three to seven years

– Then an initial public offering may take place, or the business merges or is sold, or other sources of capital are found.

– The entrepreneur relinquishes ownership and control of the business.

– VCs typically expect a 20—50% annual ROI at the time they are bought out.

– Typical investments range from $500,000 to $5 million.

– Management experience is a major consideration in evaluating financing prospects.

Venture capital fund operations

The VCs and their partners. Venture capital general partners may be former CEOs at firms similar to those which the partnership funds. Investors in venture capital funds are typically large institutions with huge amounts of available capital, such as state and private pension funds, university endowments, insurance companies, and pooled investment vehicles.

Other positions at venture capital firms include venture partners and entrepreneur-in-residence (EIR). Venture partners «bring in deals» and receive income only on deals they work on (as opposed to general partners who receive income on all deals). EIRs are experts in a particular domain and perform due diligence on potential deals. EIRs are engaged by VC firms temporarily (6 to 18 months) and are expected to develop startup ideas to their host firm. Some EIRs move on to roles such as Chief Technology Officer at a portfolio company.

Fixed-lifetime funds. Most venture capital funds have a fixed life of ten years. This model was pioneered by some of the most successful funds in Silicon Valley through the 1980s to invest in technological trends broadly but only during their period of ascendance, and to cut exposure to management and marketing risks of any individual firm or its product.

In such a fund, the investors have a fixed commitment to the fund that is «called down» by the VCs over time as the fund makes its investments. In a typical venture capital fund, the VCs receive an annual management fee equal to 2% of the committed capital to the fund and 20% of the net profits of the fund («two and 20»). Because a fund may run out of capital prior to the end of its life, larger VCs usually have several overlapping funds at the same time. Smaller firms tend to thrive or fail with their initial industry contacts.

How and why VCs invest

Investments by a venture capital fund can take the form of either preferred stock equity or a combination of equity and debt obligation, often with convertible debt instruments that become equity if a certain level of risk is exceeded. The common stock is often reserved by covenant for a future buyout, as VC investment criteria usually include a planned exit event (an IPO or acquisition), normally within 3 to 7 years.

Venture capital is not suitable for many entrepreneurs. Venture capitalists are very selective in deciding what to invest in; as a rule of thumb, a fund invests only in about one in 400 opportunities presented to it. They are most interested in ventures with high growth potential, as only such opportunities are likely capable of providing the financial returns and successful exit event within the required timeframe that venture capitalists expect. Because of such expectations, most venture funding goes into companies in the fast-growing technology and life sciences or biotechnology fields.

Winners and losers

Venture capitalists hope to be able to sell their stock, warrants, options, convertibles, or other forms of equity in 3 to 7 years, at or after an exit event; this is referred to as harvesting. Venture capitalists know that not all their investments will pay off. The failure rate of investments can be high; anywhere from 20% to 90% of the enterprises funded fail to return the invested capital. In case a venture fails, then the entire funding by the venture capitalist is written off.

Many venture capitalists try to mitigate the risk of failure through diversification. They invest in fledgling companies in different industries and different countries so that the risk across their portfolio is minimized. Others concentrate their investments in the industry that they are familiar with. In either case, they usually work on the assumption that for every ten investments they make, two will be failures, two will be successful, and six will be marginally successful. They expect that the two successes will pay for the time given to, and risk exposure of the other eight. In good times, the funds that do succeed may offer returns of 300 to 1000% to investors.

History

General Georges Doroit is considered to be the father of venture capital industry. In 1946 he founded American Research and Development (ARD) Corporation, whose biggest success was Digital Equipment Corporation. When Digital Equipment went public in 1968 it provided ARD with 101% annualized ROI. ARD’s US$70,000 investment in Digital Corporation in 1959 had a market value of US$37mn in 1968. The first venture-backed startup is generally considered to be Fairchild Semiconductors, funded in 1959 by Venrock Associates. Before World War II, venture capital investments were primarily the domain of wealthy individuals and families. One of the first steps toward a professionally-managed venture capital industry was the passage of the Small Business Investment Act of 1958. The 1958 Act authorized the U.S. Small Business Administration to license private «Small Business Investment Companies» to provide financing and management assistance to small entrepreneurial businesses in the United States. Passage of the Act addressed concerns raised in a Federal Reserve Board report to Congress that concluded that a major gap existed in the capital markets for long-term funding for growth-oriented small businesses. The goal of the SBIC program was, and still is, to stimulate the U.S. economy in general, and small businesses in particular, by facilitating the flow of capital to pioneering small concerns.

Venture capital is a phenomenon most closely associated with the United States and technologically innovative ventures. Due to structural restrictions imposed on American banks in the 1930s there was no private merchant banking industry in the United States, a situation that was quite unique in developed nations.

As of 2006 some of the most well known VC Firms are:

– Kleiner, Perkins, Caufield and Byers.

– Sequoia Capital.

– Sigma Partners.

The dotcom boom

Due almost entirely to the dotcom boom, the late 1990s were a boom time for the globally-renowned VC firms on Sand Hill Road in San Francisco. IPOs were taking truly irrational leaps, and access to «friends and family» shares was becoming a major determiner of who would benefit from any such IPO; the ordinary investor rarely got a chance to invest at the strike price in this period.

The NASDAQ crash and technology slump that started in March 2000, and the resulting catastrophic losses on overvalued, non-performing startrups, shook VC funds deeply. By 2003, many VCs were focused on writing off companies they funded just a few years earlier, and many funds were «under water»; that is, their portfolio companies were worth less than when invested in. Venture capital investors sought to reduce the large commitments they have made to venture capital funds. As of mid-2003, the conventional wisdom was that the venture capital industry would shrink to about half its present capacity in the following few years. However, Pricewaterhouse Coopers’ MoneyTree Survey shows total venture capital investments holding steady at 2003 levels through Q2 2005. The renaissance of an Internet-driven business (thanks to deals such as eBay’s purchase of Skype, the News Corporation’s purchase of MySpace, and the very successful Google IPO) has helped to revive the VC environment.

Source: Wikipedia

Essential Vocabulary

1.venture capital (VC) – венчурный (рисковый) капитал

venture capitalist – венчурный капиталист

2. capital market – рынок капитала

3. bank loan – банковский заем

4. collateral (collat) n – обеспечение

5. initial public offering (IPO) – первоначальное публичное предложение акций

6. entrepreneur-in-residence (EIR) – «домашний» предприниматель

7. due diligence – процесс должной проверки

8. Chief Technology Officer (CTO) – главный технический директор

9. fixed-lifetime fund – фонд с фиксированным сроком действия

10. pioneer n – первопроходец

pioneer v – прокладывать путь, вести

11. ascendance n – власть, доминирующее положение

12. preferred stock – привилегированные акции

13. convertible (convertibles) debt instruments (bonds) – конвертируемые долговые инструменты (облигации)

14.common stock – обыкновенные акции

15. buyout n – выкуп

buy out v – выкупать

16. rule of thumb – эмпирическое правило, практический метод

17. warrant (WT) n – варрант

18. harvest n – урожай, уборка урожая

harvesting n – уборка урожая

harvest v – собирать урожай

19. write off n – списание

write off v – списывать

20. mitigation n – смягчение, уменьшение

mitigate v – смягчать, уменьшать

21. fledgling company – только что созданная компания

22. annualizing n – пересчет в годовое исчисление

annualize v – пересчитывать на годовой основе

annualized a – пересчитанный на годовой основе

23. passage n – зд. прохождение, принятие (закона)

pass v – принимать (закон)

24. Small Business Administration (SBA) – Администрация по делам малого бизнеса (США)

25. Small Business Investment Company (SBIC) – инвестиционная компания для малого бизнеса (США)

26. Federal Reserve Board (FRB) – Совет управляющих ФРС (США)

27. merchant bank – торговый банк (Великобритания, сходен с инвестиционным банком по функциям)

28. boom n – бум, быстрый экономический подъем, период экономического процветания

boom v – быстро расти, процветать (об экономике)

29. strike price – цена исполнения

30. National Association of Securities Dealers Automated Quotations (NASDAQ) – Автоматизированные котировки Национальной ассоциации дилеров по ценным бумагам (НАСДАК)

31. slump n – краткосрочное падение экономической активности или цены конкретной ценной бумаги

slump v – снижаться, падать (об экономической активности или цене ценной бумаги)

Exercise 1. Answer the following questions.

1. What are the main differences between venture capital and the traditional financing? 2. Who are the partners of venture capitalists? 3. What are the characteristic features of fixed-lifetime funds? 4. What are the usual forms of a VC investment? 5. Is venture capital suitable for many entrepreneurs? 6. What is the usual proportion between successes and failures in the VC industry? 7. How can venture capitalists mitigate the risk of failure? 8. How was the VC industry launched? 9. How did the Small Business Investment Act of 1958 promote the VC industry? 10. Why has venture capitalism developed more actively in the US than elsewhere in the world? 11. What was the contribution of the dotcom boom to the development of the VC industry? 12. What were the effects of NASDAQ crash and technological slump? 13. How is the VC industry developing worldwide?

Exercise 2*. In general, businesses set up through venture financing develop by stages described below. Match the names of these stages given under the leading «Venture Financing Terms» with their definitions given below and describe evolution of a fledgling company through these stages.

Stages of Development of a Business

1. source of funding for the early stages of a startup venture where the product, process, or service is in its conceptual or developmental phase

2. from founding the business to the beginning of operations and the generation of revenue

3. initial growth phase, funded by the initial capitalization. Management and operations are in place, and markets initially identified are being penetrated using available resources

4. the business seeks to expand its product line, expand its facilities, identify and penetrate new markets, and continue the growth phase

5. the business is established in its target markets

6. financing provided, usually by private investors or venture capital firms, prior to a company going public, or initiating its next stage of financing

7. an offering of debt, equity or limited partnership interests to a small number of investors (generally 35 or fewer) on a ‘private’ basis. Exempt from the registration requirements of the securities laws

8. either the percentage reduction of ownership in a company resulting from the sale of additional shares of stock, or the difference between the price paid by investors in either a private-placement or public financing

9. the process of investigation by venture capital firms and other investors of a company, its business, and financial plans, prior to proceeding with an investment

10. a study that evaluates a proposed venture’s potential for success

11. an equity ownership position that is provided to a funding source as compensation, or additional compensation, for providing management consulting, financing or miscellaneous services

12. the value assigned to the entrepreneur’s contribution or investment of time and effort in the venture

Venture Financing Terms:

Private Placement. Feasibility Study. Seed Capital. Mezzanine Financing.

Sweat Equity. Startup. First Stage. Dilution. Second Stage. Equity Stake.

Third Stage. Due Diligence.

Exercise 3*. Which of the following statements are not correct and why?

1. A venture capital fund is a pooled investment vehicle that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans. 2. Venture financing is mainly provided to mature enterprises that have sufficient collateral, good track record, or stable earnings. 3. Venture capitalists typically expect a 5-15% annual return on their investment at the time they are bought out. 4. Investors in venture capital funds are typically large institutions with huge amounts of available capital. 5. Venture capitalists are not very selective in deciding what to invest in; a fund invests in about one in twenty opportunities presented to it. 6. Most venture funding goes into oil and gas sector or service companies. 7. The success rate of investments is high; anywhere from 50% to 70% of the funded enterprises return the invested capital. 8. The first venture-backed startup is generally considered to be Fairchild Semiconductor, funded in 1959 by Venrock Associates. 9. Venture capital is a phenomenon most closely associated with Japan and car making companies. 10. The NASDAQ crash and technology slump that started in March 2000 shook VC funds deeply. 11. The renaissance of an Internet-driven business has helped to revive the VC environment.

Exercise 4*. Fill in the blanks using terms given below.

Silicon Valley

Silicon Valley is an area of Northern California between the cities of San Francisco and San Jose. Until the middle of the 20th century, this….. region was better known for its apricots and walnuts than for its….. A combination of regional…… and historical accidents conspired to produce one of the greatest……. in the world.

Many people have……. the success of the Valley primarily to the influence of nearby………, particularly Stanford University. In the 1920’s, administrators at Stanford sought to improve the prestige of their institution by….. highly respected…… members from East Coast universities. One important…… was Fred Terman, an electrical engineer from MIT. Like many of his colleagues, he performed……. research in electronics. Unlike many others, though, he encouraged his students to sell….. of these new technologies in the…….. By providing……. and……, Terman enabled two of his first recruits, David Hewlett and William Packard, to…… the audio-oscillator in the late 1930s.

In 1954, Stanford University offered to….. part of Stanford Research Park to……. companies. This began the…….. of industries in Palo Alto. Stanford Research Park, through the……. of a few influential professors and university administrators, became the……. of the budding Silicon Valley. By the 1980s, the entire park had been rented out to…… firms.

The 1950s also witnessed the birth of the…….. industry. Dr. William Shockley, a Cal Tech trained engineer……. electronics by developing the transistor to magnify electronic images and replace vacuum tubes. He and some talented young……. from the East Coast……. Shockley Industries in Palo Alto. Unfortunately, his stubbornness and lack of tact soon alienated many of his colleagues and caused them to…… from his firm and form their own company, Fairchild Semiconductor. It became the first firm to……. exclusively in silicon and rapidly…….. into one of the leaders in the California electronics industry.

Over the next few years this……. would repeat itself several times, as engineers lost control of the companies they started to……. management, and then left to form new companies. AMD, Signetics, National Semiconductor and Intel all started as…… from Fairchild.

The role of……. in the development of Silicon Valley can not be……. The……. of a major military……… Lockheed, to California in 1956 brought federal……. dollars to the area. Semiconductors…….. by the defense agencies amounted to approximately two-fifths of total production. The presence of major research universities and the concentration of……. workers was also an important consideration.

This rapid……. of technology reflects itself in the organization of Silicon Valley as the new technological…….. The people who……. or were employed in these new firms considered themselves as technological…….. and the formal and informal…… that they developed are in some ways akin to the pioneers who settled the West in the 19th century. As modern-day pioneers, they were especially responsive to risky……. that had the potential for great…….

Along with sharing the same type of risks, the…….. also shared a camaraderie unsurpassed almost anywhere else in American industry. Even engineers and scientists who work at……… firms during the workday remained close friends off the job. The manager of one semiconductor firm would not hesitate to call a……. for assistance on technical matters.

The lack of rigid…….. extended to the firms themselves. Beginning with Hewlett and Packard, many of the Silicon Valley companies sought a much more interactive environment between employers and employees…….. of powers followed: major divisions of firms were given a large amount of……..

By the early 1970s there were many….. companies in the area. The growth was fueled by the emergence of the……. industry, beginning with Kleiner Perkins in 1972; the industry exploded after the successful $1.3 billion….. of Apple Computer in December 1980.

Source: Wikepedia

Terms:

frontier, offshoots, marketplace, fledgling, relocation, VC, hiring, contractor, revolutionized, core, equipment, semiconductor, procurement, rewards, entrepreneurs, agricultural, faculty, scholars, hi-tech, defense, Apples, underestimated, advantages, IPO, trailblazers, hierarchies, «science parks», attributed, autonomy, institutions of higher education, recruit, cutting-edge, applications, funds, rent, agglomeration, rival, efforts, start up, founded, resign, developed, pattern, government, highly qualified, rise, launched, communities, ventures, competing, manufacture, decentralization, outside, commercialize

Exercise 5. Translate into English.

Венчурный капитал в России

В России венчурный капитал пока только зарождается, однако потенциально является одним из основных источников финансирования для коммерциализации научно-технических разработок. Финансовый кризис 1998 г., с одной стороны, существенно ослабил финансовую систему России, но, с другой стороны, создал предпосылки для переориентации финансовых ресурсов на реальный сектор экономики. По мнению участников инновационного бизнеса, уже есть сигналы того, что российский торговый, банковский, страховой капитал, капитал пенсионных фондов будет становиться серьезным источником инвестиций в инновационные проекты малых фирм. Разумеется, для успешного развития венчурного капитала в России требуется комплекс мер государственной политики. В настоящее время уже воплощается в жизнь ряд проектов, направленных на развитие венчурного финансирования. Следует отметить, во-первых, работу государственного Фонда содействия развитию малых форм предприятий в научно-технической сфере, возглавляемого И.М. Бортником. Этот фонд предоставляет финансовую поддержку малым инновационным фирмам на возвратной основе.

Во-вторых, с сентября 1997 г. реализуется пилотная программа Европейской ассоциации венчурного капитала по поддержке развития венчурного капитала в странах бывшего СССР (NIS Venture Capital Support Program). Данный проект финансируется Программой ТАСИС Европейского союза. Программа сфокусирована на РФ, Украине и Казахстане и реализует следующие цели:

– провести тренинговые курсы по венчурному финансированию;

– составить и опубликовать справочник по частным компаниям, специализирующимся на инвестициях в акционерный капитал в странах СНГ;

– обеспечить поддержку и возможности для взаимодействия ассоциациям венчурного капитала.

Проект также направлен на рост осведомленности о значимости венчурного капитала как средства финансирования малых и средних предприятий, что должно быть достигнуто благодаря проведению национальных и региональных встреч и семинаров.

В-третьих, на территории России действуют региональные фонды венчурного капитала (РФВК) Европейского банка реконструкции и развития (ЕБРР). Каждый РФВК располагает капиталом в размере $ 30 млн для инвестирования в качестве нового акционерного капитала в средние приватизированные и другие частные предприятия на цели финансирования проектов, которые, как предполагается, должны принести коммерческий доход. Инвестируя средства в акционерный капитал, РФВК подходят к инвестиционным перспективам со среднесрочных позиций. Минимальный размер инвестиции составляет $ 300 тыс., а максимальный – $ 3 млн.

Источник: www.techbusiness.ru (отрывок)