Making the case for venture capital funds

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As a key figure in PartnersAdmin, Scott Tominaga has extensive experience in the realm of alternative investments. Fortunately, for the many potential investors out there, Scott has shared a lot of his know-how in his series of blogs.

In today’s blog, Scott Tominaga reviews the many reasons why venture capital (VC) funds are well worth the risk.

For starters, VC, like other alternative investments, have an inherent potential for massive long-term growth. If investors do their research and read the signs of the times and future trends right, their funding of startups and young companies could yield huge rewards in the years to come. So, even if VC is quite risky, it has become one of the most attractive alternative investments today when weighed against its potentially high returns.

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Scott Tominaga cites some of the biggest tech and online companies today such as Facebook, Google, and Twitter as the perfect examples of VC done right. What once were small, one-room businesses have skyrocketed to the top of the global tech empire, taking along their VC investors for the ride.

Apart from the funding, Scott Tominaga also mentions that VC investors can also be involved with other matters in the companies they choose to invest in. For example, a number of VC investors have been known to take part in the decision-making processes as well as other operations within these businesses.

Scott Tominaga is the Chief Operating Officer of PartnersAdmin LLC, a company established to provide a quality, outsourced solution to meet the dynamic back office needs of the alternative funds industry. For more investment- and fund-related reads, visit this page .

Five essential differences between private equity and venture capital.

Private equity and venture capital are often confused because of the way both of them refer to firms that invest in companies and exit through selling investments in equity financing, including initial public offerings (IPOs). But the specifics paint a whole world of difference between the two—here are five to remember:

The companies they buy

Private equity firms largely buy mature, established companies. These might not be generating enough profits or are regressing, and they are bought in order to increase their revenues. On the other hand, venture capital firms put their money into startups that demonstrate high growth potential. While PE firms buy companies across all industries, VC firms are focused on technology, biotech, and clean tech investments.

Percentage acquired

PE firms nearly always buy 100 percent of a company, while VC firms acquire only a minority stake or less than 50 percent. While the former seeks to have total control of the firm after a buyout, the latter usually prefers to spread out risk and invest in different entities.

Amount of investment

PE firms invest at least $100 million in a single company. Venture capitalists, on the other hand, spend $10 million or less in each company, since they largely deal with startups with less predictable chances of success.

Focus

PE firms don’t maintain ownership for the long term, instead preparing for a level of exit strategy after a few years. They seek to improved upon an acquired business and sell it for a profit afterwards. Venture capitalists get involved in businesses’ earliest stages of operation, and it’s often the startup capital they provide that offers new businesses the means to become appealing to private equity buyers.

People

PE firms tend to attract former investment bankers, while VC firms obtain a more diverse mix such as product managers, bankers, consultants, and former entrepreneurs.

Scott Tominaga is PartnersAdmin LLC's Chief Operating Officer with over 17 years in the financial services industry. Read more about the finance industry on this page.

The role of the back office in private equity

In an investment business such as private equity, there are three parts; the front office, the middle office, and the back office. The front office is in charge of dealing with consumers and clients upfront, like having face-to-face meetings with clients, and other client-facing roles. The middle office is in charge of risk, credit, and strategic management. For employees in this sector, the back office is simply a trap everyone wants to get out of. 

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It’s a talk among employees that those who are working in the back office always dream of having a role in the front office. Front office roles have higher pay as these are revenue-generating, unlike the back office. However, all operations of an investment bank or a finance company will be impossible without the force of the back office. Although it doesn’t directly generate income, it provides crucial support and administration. 

The back office carries out functions like settlement, record maintenance, clearances, regulatory compliance, accounting, and IT services. The operations run by the front office depends highly on the back office. Its staff focus on designing the computer systems, handling the company finances, maintaining the databases, and seeking out new talent.

Jobs in the back office are as important as jobs in the front office and middle office. Its support is needed for two offices to run smoothly. It’s more concerned with internal efforts, unlike the front office, and is more distinct than those of the middle office. 

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Scott Tominaga is the Chief Operating Officer of PartnersAdmin LLC. He has almost two decades of experience in the hedge fund and financial services industry. His company was established in 2008 with the intent to provide quality, outsourced solution to the dynamic back office needs of alternative fund industry. To know more about Scott and PartnersAdmin LLC, click here.