venture capital
Funding provided by investors to early-stage, high-potential startup companies in exchange for equity.
Example
“The startup raised $5 million in venture capital to expand its team and build its product.”
Memory Tip
VENTURE capital funds VENTURES — risky new businesses. VCs bet on startups.
Why It Matters
Venture capital is important because it fuels innovation and creates opportunities for economic growth. Understanding how VC works helps you recognize emerging investment trends and potentially identify companies that could become major players in your investment portfolio or everyday life.
Common Misconception
Many people believe venture capital is easy money that any startup can access, but in reality VCs are highly selective and fund less than 1 percent of startups that apply. Most VC investments also come with significant risks, as the majority of funded startups fail to achieve profitability or successful exits.
In Practice
A startup developing electric vehicle technology might receive 5 million dollars in Series A funding from a venture capital firm in exchange for 20 percent equity ownership. If the company eventually goes public and reaches a 1 billion dollar valuation, that initial 5 million dollar investment could be worth 200 million dollars, demonstrating how VCs profit from backing successful companies.
Etymology
Venture (a risky undertaking) + capital — capital invested in risky new ventures.
Common Misspellings
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Related Terms
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See Also
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