Risk Capital & Scale-Up Finance

Known as susu in West Africa, chit funds in India, hui in China and tandas in Latin America, these member-run pooling schemes let people without access to banks finance small enterprises long before formal microfinance existed.

Founded in Florence, the bank extended credit and financial services to merchants and craft guilds across Europe, and its accounting methods spread widely, giving smaller enterprises more reliable tools to manage and demonstrate creditworthiness.

Investor AB became an early vehicle for family-based investment in emerging industrial companies. It backed Swedish firms including ABB, Atlas Copco and Ericsson during the first half of the 20th century, illustrating the pre-institutional era of venture finance dominated by wealthy families.

A government inquiry into finance and industry found that small and medium firms struggled to raise the modest amounts of capital they needed, a shortfall long referred to afterward as the Macmillan Gap and still cited in SME finance policy.

Rockefeller helped finance the creation of Eastern Air Lines and Douglas Aircraft, while Eric Warburg founded the firm that became Warburg Pincus. These are examples of the pre-war pattern in which risk capital for young companies came almost exclusively from wealthy individuals and families.

Later known as 3i, the institution was created specifically to lend to smaller companies that banks otherwise judged too small and risky, a direct response to a financing gap identified before the war.

Founded by Georges Doriot with Ralph Flanders and Karl Compton, ARDC was created to encourage private-sector investment in businesses run by returning World War II soldiers and became the first institutional private-equity firm to raise capital from sources other than wealthy families. Structured as a publicly traded fund, it raised capital from institutions to back new technology companies, later profiting enormously from an early investment in Digital Equipment Corporation and proving the venture model viable. J.H. Whitney & Company was founded the same year, marking the birth of modern, professionally managed venture capital.

Banks at the centre of keiretsu industrial groups provided long-term relationship lending and close monitoring to affiliated small and medium suppliers, a financing model credited with supporting Japan's rapid industrial recovery.

ARDC's investment in DEC was valued at more than $355 million after the company's 1968 IPO, an annualised return of 101 per cent. The success demonstrated that a single venture investment could justify an entire fund, establishing the economic logic of the asset class.

Congress passed the Small Business Investment Act of 1958, allowing the Small Business Administration to license private Small Business Investment Companies to finance and manage small entrepreneurial businesses. SBICs could borrow against government guarantees to invest in growing firms, substantially increasing the pool of risk capital available to small business well before private venture capital had matured. The Act also provided tax breaks that contributed to the rise of private-equity firms and is regarded as one of the first steps toward a professionally managed venture capital industry.

A disused factory was subdivided to house several small tenant businesses sharing services, mentoring and equipment, establishing an incubator model later replicated by universities, cities and private investors worldwide.

Firms organised limited partnerships in which investment professionals served as general partners and passive investors supplied capital. The accompanying compensation model of a 1.0–2.5 per cent annual management fee plus carried interest of up to 20 per cent of profits remains the industry standard.

Draper and Johnson Investment Company was formed in 1962 by William Henry Draper III and Franklin P. Johnson Jr. In 1965 Sutter Hill Ventures acquired its portfolio as a founding action, and Pitch Johnson formed Asset Management Company, seeding the Silicon Valley venture ecosystem.

Ferris's firm started the first of three waves of venture capital in Australia and New Zealand. A later boom in 2018 left more than one hundred active VC funds, syndicates or angel investors operating in the region.

An electronic quotation system gave smaller, fast-growing companies a listing venue distinct from established exchanges, creating a public exit route that made early-stage venture investment more attractive by offering a path to liquidity.

Kleiner Perkins was the first venture firm to open an office on Sand Hill Road, followed by Sequoia. Their location gave access to Santa Clara Valley semiconductor, computer and software companies, creating the geographic cluster that defined venture capital for decades.

With the number of new venture firms increasing, the NVCA was founded to serve as the industry trade group for venture capital. Its creation marked the industry's emergence as an organised interest with collective representation.

The Employee Retirement Income Security Act prohibited corporate pension funds from holding certain risky investments, including many in privately held companies. The restriction initially cut venture capital off from a large pool of institutional money.

Lending from his own pocket to people excluded from bank credit, Yunus ran an experiment that grew into Grameen Bank and the modern microfinance movement for very small enterprise.

The reinterpretation allowed corporate pension funds to invest in venture capital as an asset class, opening a major new source of capital. That same year the industry recorded its first major fundraising year, raising approximately $750 million. Capital gains tax reduction from 48.5 to 20 per cent in the same decade reinforced the effect.

Public successes such as Digital Equipment Corporation, Apple and Genentech drew a proliferation of new firms, up from a few dozen at the start of the decade. Capital managed rose from $3 billion to $31 billion, though returns declined sharply amid competition and the 1987 crash.

After the IPO market collapsed, General Electric and Paine Webber sold or shut their venture arms, while units at Chemical Bank and Continental Illinois shifted toward mature companies. Even J.H. Whitney and Warburg Pincus moved toward leveraged buyouts and growth capital.

The advent of the Web drew investors to companies with huge growth potential; Netscape and Amazon were founded in 1994 and Yahoo! in 1995, all venture-funded. A wave of internet IPOs from 1992 to 1997 generated enormous returns and reset expectations for the asset class.

The number of venture funds raised rose from about 40 in 1991 to more than 400 in 2000, with capital committed rising from $1.5 billion to over $90 billion. Venture investment reached 1.087 per cent of US GDP in 2000, nearly nineteen times the 1994 level.

Updated analysis continued to put unmet credit demand among small and medium enterprises in developing economies at several trillion dollars, with the shortfall concentrated among women-led and informal firms least served by banks.

The state-backed People's Business Credit scheme, which lends to micro and small enterprises at reduced interest rates under a government guarantee, again expanded its annual budget allocation, remaining one of the largest SME credit programmes in Southeast Asia.

Investment in the United States hit the highest annual total on record, driven largely by very large financings and rising valuations in artificial intelligence. Levels remained historically elevated into 2026, when KPMG reported $144.9 billion across 3,644 deals in the second quarter alone.

The government-backed programme, which combines subsidised office space, mentorship and access to state-linked investors, continued expanding as Gulf states competed to attract founders and early-stage capital away from other regional hubs.

The scheme, which guarantees a share of bank loans made to micro and small enterprises, continued operating as a permanent facility after starting as an emergency pandemic measure, helping smaller firms access credit at lower risk premiums.

Enforcement of the 2021 law requiring digital credit providers to register continued, with regulators removing non-compliant mobile lending apps from the market to curb predatory rates charged to small borrowers and micro-enterprises.

Venture investment into African start-ups, concentrated in Nigeria, Kenya, Egypt and South Africa, stayed well below the highs reached earlier in the decade, pushing many founders toward revenue-based financing and grants instead of equity.

The PIF-backed programme, created to deepen Saudi Arabia's venture and private-credit market for small and medium enterprises, added new fund commitments as part of a broader push to build a domestic financing ecosystem beyond bank lending.

State-guided investment funds took a larger role in financing smaller manufacturers and technology firms as private venture capital pulled back, with policymakers explicitly encouraging longer investment horizons over quick returns.

The initiative combined grants and matching investment to support start-ups and small firms in software, media and other digital and creative industries, backed by international development finance alongside domestic funding.

Facing low repayment rates and criticism of its design, the government adjusted the terms of the scheme, which offers small, collateral-free loans to informal traders and entrepreneurs and is one of the country's largest financial-inclusion programmes.

A decade-long investment boom, backed by the government and mega-corporations such as Kakao, Smilegate, SK and Lotte, peaked in 2021. New venture capitalists then announced a 40 per cent cut in financing in 2024.

Policies fostered under the Green Deal contributed to growth in venture funding specifically for green technology companies, even as other sectors experienced a downturn. It illustrates how policy can steer venture capital toward targeted sectors.

The State of Startup Funding report recorded over AUD $10 billion invested in Australian and New Zealand startups, a threefold increase on the $3.1 billion invested in 2020. By 2022 the largest funds were Blackbird Ventures, Square Peg Capital and Airtree Ventures.

After fortunes turned around in 2010 with $21.8 billion invested, the industry grew steadily to raise $80 billion in fresh capital by 2020. A brief decline in 2022 was followed by renewed recovery.

MAGNiTT's H1 2019 report counted 238 startup investment deals totalling $471 million, up 66 per cent in funding on the previous year. Careem's $3.1 billion acquisition by Uber was the region's first unicorn exit, following Souq.com's $650 million sale to Amazon in 2017.

From 2016 new legal vehicles were created for entities investing in enterprises at the seed or startup phase. By March 2019 there were 130 active VC firms in Poland managing an estimated €2.6 billion, having invested in over 750 companies.

The National Research Foundation gave grants of up to around $30 million to four large local enterprises for investing in city-state startups, while SGInnovate was launched to support deep tech startups. The same year Singapore recorded 100 private equity and venture deals worth US$3.5 billion, a record.

European venture investment grew significantly over the decade, with €12.9 billion invested in 2023 across 4,764 companies, 99 per cent of them SMEs. VC-backed European companies employed more than 988,000 people at 13,524 mainly small and medium enterprises by the end of 2023.

Following the Jumpstart Our Business Startups Act, the prohibition on general solicitation was eliminated for certain offerings. Since 2013 issuers may advertise offerings publicly provided all purchasers are verified accredited investors, easing fundraising for venture funds and startups.

Israel attracted $170 per person compared with $75 in the United States, reflecting an economy built on knowledge-based industries. The country hosts around 70 active venture funds, including 14 international VCs with Israeli offices, plus 220 international funds investing there.

The total was spread across 299 deals, marking the scaling up of India's risk capital market. Vietnam meanwhile received its first foreign venture capital funds, including IDG Venture Vietnam and DFJ Vinacapital.

The technology slump beginning in March 2000 shook the entire venture industry as startup valuations collapsed, forcing firms to write off large proportions of their investments and leaving many funds under water. By mid-2003 the industry had shrunk to about half its 2001 capacity, with investors offloading commitments in the secondary market.

Babson College's Diana Report found the share of women partners in VC firms declined over the period. Female-founded companies raised 2.8 per cent of venture capital in 2020, the highest recorded, falling to 2 per cent of US VC funding in 2021.