Misapplication of venture capital

Capital invested in high-risk commercial ventures; (start-ups of companies, new product development and production, market entry or export, etc) is placed with the hope of eventual high or exceptionally high returns but often with little managerial control or assistance offered. In the explosion of high technology enterprises and products, venture capitalists have placed funds in start-ups with inadequate assessment of corporate and product potential. Small, new companies are frequently over-funded simply because they are in a glamour industry. The result encourages high rates of expenditure and excessively high risks to attain rapid growth. High failure rates follow.

The venture capital industry include individual financiers and banks but also large insurance companies and pension funds. In the USA, available venture capital is estimated to have grown at an average rate of 50% a year since 1978. Outside the USA venture capital is still provided mainly by banks whose ability to comprehend modern technology and offer managerial assistance is limited.