Venture Capital

Venture capitalists, often referred to as VC's, are private equity investor which provides investment capital to companies exhibiting high growth potential in exchange for an ownership stake in the form of equity. Common examples of VC funding include startup ventures or supporting smaller companies that need capital to expand but do not have access to public funding or traditional lending markets. VC's take on the risk of investing in these companies because they can earn a massive return on their investments if these companies are a success. VCs experience high rates of failure due to the uncertainty that is involved with new and unproven companies.

Understanding Venture Capitalists
Venture capitalists are usually structured as limited partnerships (LP) where the partners invest in the VC fund. The fund normally has an investment committee that is conducts due diligence prior to making investment decisions. Once promising emerging growth companies have been identified, the pooled investor capital is deployed to fund these firms in exchange for a sizable stake of equity.

Contrary to public opinion. VCs do not normally fund startups from the onset. Rather, they seek to target firms that are at the stage where they are looking to commercialize their idea. The VC fund will buy a stake in these firms, nurture their growth and look to cash out with a substantial return on investment (ROI).