Venture Capital is financial investment that is provided for a company – usually a smaller company that is in its early stages of growth, and which comes with a significant potential for success – in order to create a high return on the capital supplied. This return usually occurs through an IPO (initial public offering) when a company “goes public,” or else through a trade sale of the company.
In most cases, the money for venture capital investment is provided in exchange for shares in the company being supported. It is often supplied by either a number of investors from an institution, or else by an individual with a very high net worth.
Some of the most common industries for venture capital investment include biotechnology, communications, and information technology. Because of this, many venture capital firms are made up of teams of individuals with specific expertise in business, industry, and the science and technologies in which they tend to invest their money.
Successful venture capital firms quickly develop the ability to seek out and discover technologies that can create maximized financial returns on their investment, especially very early on in the development of the company. Venture capital investment can garner incredible profits, but as with other forms of investment there is a significant element of risk involved. Some of this risk is sometimes managed by the creation of venture capital funds. These funds pool the investments of many individuals in order to work with riskier businesses that are unable to receive funding through regular bank loans or other sources.