Hedge Funds are alternative investments using pooled funds that employ different strategies to earn active returns, or alpha, for their investors. They are (generally) aggressively managed or make use of derivatives and leverage in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark), and minimize risk - in a nutshell, "Hedge Fund" is about managing the risk and generating high returns, despite the fluctuations in the market. Hedge funds investments in Germany
Putting it into simpler words, a hedge fund typically means taking money from the rich and investing it different asset class, eyeing high investment returns.
Venture capital (VC) is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. To raise the money needed to invest in these startup companies and small businesses, VC firms create a fund and ask for commitments from limited partners, enabling them to form a pool of money, to invest from.
In simpler terms, it is a form of financing where capital is invested into a company, in exchange for equity in the company. Venture capital rising in Germany
Since investing in a startup involves high risk, VCs particularly look for the startups that ensure high investment returns. The other strategy these VCs implies is simultaneously investing in multiple companies so that a high return investment can be ensured.
Key Difference in Strategies
Venture Capital primarily follows a three-step strategy that includes:
Adding value
Sourcing better
Investing better
The Venture team formulates the business concept & plan and plays a major role in guiding market opportunity, risk judgement and many more.
Hedge funds believe in implying strategies that ensure active returns. Thus their strategy ranges from long/short equity to neutral market. They also follow a kind of event-driven strategy known as Merger Arbitrage, where the hedge manager buys shares in the target company and sells it according to the merger agreement with certain conditions. Venture capital rising in Berlin
The trend of hedge funds investing in startups has decreased in the past years. Comparatively when the huge wave of hedge funds occurred in 2013, firms like Tiger Global Management invested in almost every startup industry, Passport Capital invested in US tech startups and many more like them invested hugely in fintech.
In spite of the decrease and because of their flexibility on pricing & valuations and the ability to liquidate faster, hedge funds are again catching the eyes of private equity sectors. There are strong signs of witnessing a drastic increase in hedge funds transactions, in the coming years.
The 'Babe Ruth effect' mentioned in an article written by Chris Dixon of top venture firm Andreessen Horowitz ensures how venture capitalists invest knowing they’re going to take a lot of losses in order to hit those wins. But in the end, they also make the "return the fund."
Big companies like Face book, Snap, WhatsApp, Twitter, Xiaomi, Spotify, and Flip kart have been blooming constantly over the years because of venture capitalists that invested in them and guided them with the strategies and advice to enhance their business models.
On the other side, while hedge funds have dabbled in venture since around the dot-com bubble, their presence in the asset class was never as prominent as it has been over the last year. The trend of wooing fast-growing startups by offering to pay as much as 50% to 100% higher than traditional VCs is led most famously by Tiger Global and Coatue Management. Unicorns are privately owned startup companies with a valuation of $ 1 billion. The number of unicorns has been constantly growing. There are more than 700 unicorns in the world. The US alone has more than 230 unicorns leading China. China has more than 225 unicorns and each minute gives rise to a minicorn. India is also appraising this journey of affluence.
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