Risk and return of entrepreneurial investments Essay

Risk and return of entrepreneurial investments - Essay Example In this regard, venture capital partnerships have played a significant role and have made this industry grow (Kaplan and Schoar, 2003). In order to validate their claim, Kaplan and Schoar (2003) analysed the history of venture capital partnerships which had increased in the year of 1990 from less than $10 billion to over $180 billion till the year of 2000. Entrepreneurial investments require taking many risks and return measurement methods. But, before going to take risk, capital is required to be available for the purpose of investments. Many methods are available that can be used for the purpose of arranging capital. Venture capital can be a good source of finance. In which mostly, wealthy individuals provide their capital to investment companies, small business, and limited partnerships. This type of capital is collected to invest in a new business or ventures. A considerable amount of capital is required to invest with the intent of receiving high returns.Furthermore, angel investors also provide capital for those who wants to establish their small business or those who want to become investment entrepreneurs. This type of capital is mostly provided and given for a one-time injection. This one time injection provides a root to grow the tree of a business or investment. Also, Initial Public Offerings (IPOs) can also be used for the purpose of raising capital. This raised capital can be used for the purpose of doing further investment in different and variety of assets. But, using this method of collecting capital requires a company to issue a publically tradable shares and securities. After arranging and investing capital, return can be measured and understood with the use and application of the Internal Rate of Return (IRR). The internal rate of return provides a figure of the annual yield on an investment (Gottschalg & Phalippou, 2007). This yield measurement tool is considerably helpful to determining the level of yield that can be expected from a set of investments. A particular numerical method of the internal rate of return is used to obtain the figure of yield. Also, Net Present Value (NPV) is a widely used as a tool of evaluation. This tool of evaluation can be used to determine and highlight an investment project from a set of different investment projects that have positive cash flows. Thus, the posi tive net cash flows authenticate and validate to go with the project for the purpose of investment. In the subsequent parts of this piece of work, first, private equity funds, angel investors, venture capitalists, IPOs are further elaborated. Then, IRR and NPV are explained. But before conclusion, some focus is given to US or EU returns of entrepreneurial finance are explained. Private Equity Funds____________________________________ Private equity is not quoted like public equity in the capital markets. Fund managers first try to arrange some funds. And subsequently, these funds are invested into public and private companies. Various sources are available that can be used for the purpose of raising funds. For example, angle investors, venture capitalists and so on. Mostly, it is these sources that play a vital and pivotal role in raising funds. Additionally, some academic gurus call them institutional investors as well. Various reasons can require a need to raise funds or capital. Sometimes, a company may require to facilitate and to fulfil the purchase needs of new assets to add to the efficiency of a business; to fulfil a short term