Emerging Growth Companies (EGCs) . .
are what venture capitalists are eager to add to their
investment portfolios. They are companies that promise to grow fast
and create a healthy return on investment for their investors. This is
customarily achieved when the company, now just "emerging"
as an attractive investment, does well enough to support a public
offering or attract a corporate purchaser in three to eight years (or
less with Internet companies). EGCs are usually in industries whose
stocks tend to sell at high multiples of company earnings. These
industries are attractive to investors because they take fewer dollars
of earnings to support high stock prices when the investor later
High tech companies are not necessarily emerging
growth companies. While it is true that high tech companies have
attracted a lot of venture capital investment, it is not because they
are high tech. They have received funding because they tend to be in
industries that support high price-earnings ratios.
EGCs include any company that presents good
potential for rapid and sustained growth (growth in excess of the
industry average or the gross national product). Low- or no-tech
companies with the potential for rapid and sustained growth are being
funded. The venture capitalistís primary concern is final return on
investment when the company stock attains liquidity, not the glamour
of high tech. See: High Tech,
Companies, Price-Earnings Ratio,
ROI (Return on Investment).