May 17, 2007 10:52 AM
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(Updated Jan 21, 2011 10:34 PM)
Venture capital (VC) is financial capital provided to early-stage, high-potential, growth startup companies. The venture capital fund makes money by owningequity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as biotechnology, IT, softwareetc. The typical venture capital investment occurs after the seed funding round as growth funding round (also referred as Series A round) in the interest of generating a return through an eventual realization event, such as an IPO or trade sale of the company.
In addition to angel investing and other seed funding options, venture capital is attractive for new companies with limited operating history that are too small to raise capital in the public markets and have not reached the point where they are able to secure a bank loan or complete a debt offering. In exchange for the high risk that venture capitalists assume by investing in smaller and less mature companies, venture capitalists usually get significant control over company decisions, in addition to a significant portion of the company's ownership (and consequently value).
Venture capital is also associated with job creation (accounting for 21% of US GDP), [1] the knowledge economy, and used as a proxy measure of innovation within an economic sector or geography.
