Realizing Gains On LSVCC Investments
Gains made in the value of LSVCCs occur in one of three ways:
- Exiting from an investment in a company via an initial public offering.
- Selling the investment in a company to a larger company (often in the same industry) by way of mergers and acquisitions.
- Capital appreciation in currently held investments in a company.
LSVCC fund companies tend to use their investment in a company to buy an equity stake. They will also negotiate to have members of their portfolio management team hold positions on the board of directors of companies they invest in. This allows them to have some say in future decisions that that company makes in regards to company strategy and execution.
LSVCC funds have holding periods because of the time it takes for these small companies to meet the criteria necessary for one of the above-mentioned options. Even though the holding period is an extended period of time, the LSVCC fund company doesn't wish to retain any investment indefinitely. The primary objective of LSVCC fund managers is to obtain a superior rate of return through an eventual and timely disposition of each investment.
Read more about this topic: Labour-sponsored Venture Capital Corporation
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