While Silicon Valley and other entrepreneurial hotbeds have long been dominated by Venture Capital firms, traditional investment companies are now looking to cash in on the profits made by start ups. Hedge funds, private equity firms, and other asset management based investment companies are now challenging VC firms and their dominant place as the capital source of choice for young Start-Ups.

This development comes even after numerous flops on the IPO market for Silicon Valley stalwarts, such as Facebook and Groupon, have flopped in recent years. This has come as part of a movement to diversify investment portfolios and uncertainty in the global economy. Even with the Dow Jones reaching a record all-time high many investors are still still skittish about global conditions and future growth. This makes young Start Ups in vital technologies very attractive. Many are still in the early stages of development and setting up business operations and likely won’t come to market, or at least go public, for several more years.

The entry of traditional investment vehicles into the Start-Up market couldn’t come at a better time. In 2012 Venture Capital investments dropped by 15% to 29.7 billion dollars even as other financial markets have surged ahead. With Venture Capital drying up traditional investment companies have stepped in to fill the gap.

Not only that, many Start Ups prefer working with traditional investment companies. Venture Capital firms have been accused of being over bearing and too often interfering with the daily operations and management of the Start Ups in their portfolios. Not only that, but firms demand large portions of equity in return for their funds. Traditional investment companies, while still having stringent requirements, are viewed as less overbearing and often offer better terms in exchange for equity.

Others have noted, however, that hedge funds and other traditional investors tend to push for higher valuations. This puts increased pressure on the Start Ups themselves and may push them to try and sustain unachievable price levels for their stock and equity.

At the very least the entry of traditional investment firms should increase the competition to provide funding in Silicon Valley and perhaps eventually in innovation hotbeds across the world. With traditional investors willing to pay higher prices Venture Capital funds will find themselves pressured to increase their own terms, at least if they want to be a part of the biggest projects.