Business, Legal & Accounting Glossary
A form of financing provided by investors to help new businesses grow. A venture capitalist usually receives a substantial portion of the businesses equity in return for the capital investment.
Venture capital is a source of funding for a high risk, but potentially high return, new business venture. Most venture capital is obtained from one or more venture capital firms, generally in exchange for an equity stake and a measure of control. Traditionally, venture capital has been considered difficult to obtain and only proven firms with a capable management team could secure such financing. In the dot com boom, speculative investment reached such a crescendo that far more money flowed from investors into venture capital funds. More venture capital dollars looking for businesses to fund in the late 1990s made obtaining venture capital backing much easier, at least for a while. For venture capital investors, some of those speculative deals were very successful. Many firms with venture capital backing at the time quickly went public, cashing out the venture capital investors. Subsequent shareholders did not always share the venture capital investors’ success, with some poorly conceived startups failing after their IPO. In both spoken and written business language, venture capital is often abbreviated VC.
A start-up company with a solid business plan and an innovative product will usually not have any problems attracting venture capital.
Venture capital played a strong role during the dot com boom, and many investors suffered considerable losses when the bust occurred.
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This glossary post was last updated: 13th February, 2020