The Minimization of Increased Risks in Risky Capital Investments

Updated: 06/06/2007 12:36
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In this article I discuss the strategies of the minimization of risks in risky capital investments. In my earlier articles I wrote about theoretical issues of venture or high risk investment programs made by great investors. Experienced HYIP online investors are sure that the examples of making great high risky investments can be very helpful for little investors to make their investments in online HYIP.

Undoubtedly, the increased risk has always existed in any serious investment sphere. Venture investment as the special form of financial enterprise has developed by producing of organizational forms and mechanisms of reduction of investors' risk.

The simplest organizational form allows the investor to invest in the project, he is interested in, directly. This form is connected with the greatest financial risk, however it also promises the investor the highest profits by the successful completion of the project. In case of scientific and technical projects it is used in practice mainly by great investors at the later and less risky periods of an innovation cycle.

According to official financial studies the factor of risk usually exceeds the factor of potential benefit in the process of working out investment decisions. Therefore, the venture investors prefer to diversify their efforts, dividing financial risk and the profit obtained from the final analysis.

The venture diversification can be achieved in several basic forms.

First, an experienced investor does not invest all his financial means on one high yield investment program but he invests his money in several different projects. Therefore, due to this investment method the investor reduces the possible high risk of his high interest investment and several venture investments can bring more return on investment.

The investors' experience and practice show that though they make detailed selection of HYIP, 4 or 5 projects of each 10 high yield programs fail completely, 3 or 4 projects lead to the appearance of little profit opportunities and only 1 or 2 projects give actually brilliant results for which venture business exists in this high yield investment world. Furthermore, because of such successfully realized projects investors can get so high return on investment.

Secondly, risky capital investors can invest in the joint projects of some great and promising business projects. Besides the decrease of a sum which each private investor risks this joint investment creates general interest in the successful completion of the project and provides the effect of synergy of special knowledge, business connections and administrative experience.

Thirdly, a joint venture fund can be established which will manage risky investments. Such funds which are used completely widely nowadays have a status of financial partnership with the limited responsibility. Their participants obtain profit and have losses proportional to the invested money.

For example, according to different financial statistics, there are between 400 and 600 joint risky capital funds in the USA. Moreover, according to the published estimations, these funds make more than 75% of risky capital.

Founders of the venture fund usually specify its summary volume by the fund's establishment. The fund has the limits between $5,000,000 and $10,000,000, however in some cases it can reach larger sizes. The investments of some investors are as a rule between 200 and 750 thousand dollars.

The realization of financial operations has special requirements of investment management under the conditions of increased risk. Furthermore, from the very beginning the development of venture business was connected with the establishment of the professional managers' institute.

The specialized venture companies which manage several risky capital funds have a central position in the business sector nowadays. Frequently such firms which investors consider as skillful and reliable partners already claim as the initiators of the establishment of new venture funds. They receive yearly 2-3% of the total volume of the risky capital fund for their management services within 7-12 years.

After the realization of risky capital investment programs and securities' sale of new high yield investment companies the investors get returns on investments according to the sum of invested money.

The exception is the company that controls the venture fund can have another portion of return, in other words the controlling investment company can get 20-30% of the profit, even if its initial investment composed only 1% of the summary volume of financial means invested in the fund.

In the conclusion I hope that readers and HYIP investors can use the mechanisms of reduction of investors' risk in serious venture investment programs written and described in this article as tools for their own online investments. It is important to remember that serious investments always have enormous risk but you can reduce it using smart methods.


About the author

Nicole Berger has over seven years experience writing and editing for online and print media. She has held various editor and associate editor positions in some of forefront independent media publications. A consistently dependable team player, I thrive in a high-pressure environment, enjoy the challenges of meeting deadlines and managing a team, and am comfortable researching, writing and editing on a wide range of topics.
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