Venture capital

Venture capital is capital provided by outside sources for financing of new, growing or struggling businesses. A venture capitalist (VC) is a person who makes such investments. A venture capital fund is a pooled investment vehicle (often a partnership) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans. A limited partner is a person or organization who invests capital in a venture capital fund for financial gain. A general partner is a venture capitalist who manages the fund and makes investments. Venture capital investments generally are high risk investments but offer the potential for above average returns. Investments by a venture capital fund can take the form of either equity participation or a combination of equity participation (typically with preferred stock) and debt obligation—often with convertible debt instruments that become equity if a certain level of risk is exceeded. In most cases, the venture capitalist becomes part owner or a member of the Board of Directors of the new venture. Most investments are structured as preferred shares—the common stock often reserved by covenant for a future buyout, as VC investment criteria usually include a planned exit event (an IPO or acquisition), normally within three to seven years. In case a venture fails, then the entire funding by the venture capitalist has to be written off.

Related Topics:
Pooled investment - Partnership - Financial capital - Capital markets - Bank - Loan - Equity - Preferred stock - Debt - Convertible debt - Owner - Board of Directors - Preferred shares - Common stock - IPO - Acquisition

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