What is Venture Capital? Venture capital is the initial financial capital provided to the startup companies at the early stages. The financial capital is usually provided to the companies which are found to have a high growth potential. The venture capital fund then owns equity in the companies in which it has invested in and in turn makes money out of it. The fund usually invests in the companies which has or is working on novel technologies, or with a novel firm business model in high technology industries like Information Technology, Biotechnology, Nanotechnology and many more similar industries.
The venture capital investment is done after the seed funding is done as a growth funding with the interest to generate returns upon the realization of the project in the form of IPOs or trade sale. The venture capital is most sought after by the new companies which are starting up small or who don’t have an operation history in the domain which makes then ineligible to obtain bank loans or complete debt offering. Venture capital is a high risk investment as the money will be put on a start up firm , but they do get significant control over the company’s decisions and also will be a part owner of the company as well.
Venture capital also creates a lot of jobs and knowledge economy as well. It was found by a survey that out of 2 million businesses created annually in the United States, only 800 to 1000 companies get venture capital funding. The venture capital has been accounted for more than 20 percent of the GDP in the United States by creation of jobs. As per the data obtained from the National Venture Capital Association, it is found that around 12- 13 percent of the jobs are from the venture capital backed companies.