Venture capital

Venture capital companies and funds invest in start-ups, or in the expansion of the existing operations of private companies.

Venture capital investments are high risk, but the risk is usually well diversified. Any one venture capital company makes a wide range of investments and only expects some to succeed. The returns on venture capital investments can be very high, but the failure rate of early stage companies is also very high.

Venture capital investors usually have real influence over the management of the companies they invest in. This is quite natural as they are likely to be a major shareholders. They often have expertise that can be useful in managing companies better. The level of involvement they seek can also lead to conflicts with the founders of a business.

Venture capital companies are wary of investing in very early stage companies. They are also frequently reluctant to make small investments (usually, much less than a million pounds) because of the time needed to actively manage a large number of separate investments.

As many start-ups need small amounts, and venture capital companies are reluctant to provide it, the gap has increasingly been filled by angel investors.

Venture capital is only part of the broader private equity industry.

Copyright Graeme Pietersz © 2005-2020