What Is Venture Capital (VC)?
Venture capital investing is a form of private funding and a style of financing that VCs issue to startup companies and small growing brands that are perceived to have long-term growth potential. Venture capital generally comes from the rich, investment banks, and any other financial companies. There are other exceptions to this rule but this is fairly standard.
Keep in mind that VC does not always take a monetary form; it can also be provided in the form of technical or high-level expertise. Venture capital is typically allocated to small companies with tremendous growth potential, or to companies that have grown quickly and appear poised to continue to expand.
Though it can be risky for VCs who put up money for such early stage projects, the potential for above-average returns is an attractive payoff and worth the risk. Most investments fail. For new companies or ventures that have a limited operating history (under two years), venture capital is becoming a needed—even essential—source for drumming up money, especially if they lack access to sophisticated markets, bank loans, or other debt devices. The main risk in all of this is that the investors usually get equity in the company, and, thus, a say in company decisions. Not always ideal.
KEY NOTES TO CONSIDER
- Venture capital financing is funding provided to companies and business mavens. It can be provided at different cycles of their evolution, although it often involves early and seed round funding.
- Venture capital funds manage pooled growth in high-risk opportunities in young companies and other early-stage firms and are mostly only open to high level investors.
- Venture capital has evolved from a small activity at the end of the Second World War into a booming and highly sophisticated industry with multiple players that play an important role in driving innovation.
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