1. What is venture capital financing?

Venture capital (VC) is a form of financing that institutional investors provide to entrepreneurs and startup businesses, usually at the expansion stage of their growth.

However, VC funding can be provided at any stage of a company’s evolution.

As a rule, VC funding might come from VC firms, investment banks, high-net-worth individuals (HNWI) and other financial institutions.

Sometimes, VC doesn’t presume a monetary investment but rather a transfer of technical or managerial know-how.

VC financing is provided to startups and small businesses that are expected to generate high returns due to an exceptional business idea, unique product or revolutionary technology, among others.

Venture capitalists invest in early-stage businesses in exchange for equity or an ownership stake, sometimes having an influence on companies through their voting rights.

Startups generally opt for VC financing, as they can’t go public and seek investments from retail investors. Meanwhile, venture capitalists are happy to consider this highly risky investment form, hoping for a generous pay-off. Note that venture capitalists don’t ignore diversification. Thus, they invest in multiple startups, expecting that at least some of them will boost their portfolio’s aggregate return.