What is Venture Capital?
Welcome to the Investors Trading Academy talking glossary of financial terms and events. Our word of the day is “Venture Capital”. Venture Capital or VC firms are similar to private equity firms in that they invest large amounts of money in companies, in order to provide them with funding to enhance the target company. The idea is that the VC firm buys into the target company, improves it or simply waits for the company to grow and then sells its stake for a profit. In contrast to private equity firms, venture capital firms usually invest in start-up companies and invest smaller amounts, and have a much higher percentage of their investments which fail. However, because they invest in startup firms, if the firm succeeds the return is likely to be very high indeed, therefore offsetting any losses made previously. Venture capital can also include managerial and technical expertise. Most venture capital comes from a group of wealthy investors, investment banks and other financial institutions that pool such investments or partnerships. This form of raising capital is popular among new companies or ventures with limited operating history, which cannot raise funds by issuing debt. The downside for entrepreneurs is that venture capitalists usually get a say in company decisions, in addition to a portion of the equity. ==Well-known venture capitalists include Jim Breyer, an early Facebook investor; Peter Fenton, an investor in Twitter; Peter Thiel, the co-founder of PayPal and Facebook's first investor; and Jeremy Levine, the largest investor in Pinterest. Venture capitalists look for a strong management team, a large potential market and a unique product or service with a strong competitive advantage. They also look for opportunities in industries that they are familiar with, and the chance to own a large percentage of the company so that they can influence its direction. By Barry Norman, Investors Trading Academy
