What is venture capital?
Venture capital is money invested in small businesses and start-ups that are thought to have excellent growth potential. Because start-ups typically have little or no access to capital markets, venture capital is a vital source of funding.
Where have you heard about venture capital?
Venture capital generally comes from wealthy investors and investment banks who can afford to take risks. Famous venture capital-backed businesses that have gone on to flourish include eBay, Starbucks, Google and Microsoft.
What you need to know about venture capital.
For their investment, the venture capitalist will usually want to receive a percentage of the firm’s equity and have a say in company decisions. The investment is typically for a period of 5-7 years, after which time the investor will expect a return on their money. They could either float the company on the stock market or sell it.
This type of investment can be extremely lucrative because it enables investors to get in at the beginning of what could be a future top company. However, it can also be very risky because for every success story, there’s a fledgling company that fails to take off.
Find out more about venture capital.
Read our definitions of equity financing and angel investor.