What is venture capital?
Venture capital (VC) is risk capital invested in young, fast-growing unlisted companies with high potential but high risk. In exchange for the capital, the VC fund receives equity and often takes an active role through a board seat and operational support.
Investment stages
- Seed — the earliest money, often before the company has revenue.
- Early stage (Series A/B) — capital to scale a proven business model.
- Growth stage — larger rounds to accelerate expansion ahead of an exit or IPO.
Venture capital and private equity
VC and private equity are both risk capital, but VC focuses on young, early-stage companies while private equity buys mature, profitable ones. VC investments are almost always made through a new share issue, where new capital is added to the company.
How a VC fund makes money
Returns come at exit, when portfolio companies are sold or go public. Because many young companies fail, the model relies on a few winners compensating for the losses across the rest of the portfolio.