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Venture capital (VC) is a form of private equity financing provided by firms or funds to startup, early-stage, and emerging companies, that have been deemed to have high growth potential or that have demonstrated high growth in terms of number of employees, annual revenue, scale of operations, etc.

Venture capital firms or funds invest in these early-stage companies in exchange for equity, or an ownership stake. During a seed round, entrepreneurs seek investment from angel investors, venture capital firms, or other sources to finance the initial operations and development of their business idea. Typical venture capital investments occur after an initial "seed funding" round. The first round of institutional venture capital to fund growth is called the Series A round. In addition to angel investing, equity crowdfunding 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 early-stage companies, venture capitalists usually get significant control over company decisions, in addition to a significant portion of the companies' ownership (and consequently value).

Former employees of ARDC went on to establish several prominent venture capital firms including Greylock Partners, founded in 1965 by Charlie Waite and Bill Elfers; Morgan, Holland Ventures, the predecessor of Flagship Ventures, founded in 1982 by James Morgan; Fidelity Ventures, now Volition Capital, founded in 1969 by Henry Hoagland; and Charles River Ventures, founded in 1970 by Richard Burnes.

Throughout the 1970s, a group of private-equity firms, focused primarily on venture capital investments, would be founded that would become the model for later leveraged buyout and venture capital investment firms. In 1973, with the number of new venture capital firms increasing, leading venture capitalists formed the National Venture Capital Association (NVCA). The public successes of the venture capital industry in the 1970s and early 1980s (e.g., Digital Equipment Corporation, Apple Inc., Genentech) gave rise to a major proliferation of venture capital investment firms.

These returns, and the performance of the companies post-IPO, caused a rush of money into venture capital, increasing the number of venture capital funds raised from about 40 in 1991 to more than 400 in 2000, and the amount of money committed to the sector from $1.5 billion in 1991 to more than $90 billion in 2000.

A venture capital fund refers to a pooled investment vehicle (in the United States, often an LP or LLC) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans.

Venture capital firms are typically structured as partnerships, the general partners of which serve as the managers of the firm and will serve as investment advisors to the venture capital funds raised.

Within the venture capital industry, the general partners and other investment professionals of the venture capital firm are often referred to as "venture capitalists" or "VCs".

Venture capital, as an industry, originated in the United States, and American firms have traditionally been the largest participants in venture deals with the bulk of venture capital being deployed in American companies.

However, despite its growth, venture capital investment in the Europe lags significantly behind the US and China, with the EU capturing only 5% of global venture capital compared to 52% in the US and 40% in China. Leading early-stage venture capital investors in Europe included Mark Tluszcz of Mangrove Capital Partners and Danny Rimer of Index Ventures, both of whom were named on Forbes Magazine's Midas List of the world's top dealmakers in technology venture capital in 2007.

Quick Facts

• Within the venture capital industry, the general partners and other investment professionals of the venture capital firm are often referred to as "venture capitalists" or "VCs".
• In 1973, with the number of new venture capital firms increasing, leading venture capitalists formed the National Venture Capital Association (NVCA).
• Venture capital firms or funds invest in these early-stage companies in exchange for equity, or an ownership stake.
• Venture capital, as an industry, originated in the United States, and American firms have traditionally been the largest participants in venture deals with the bulk of venture capital being deployed in American companies.
• During a seed round, entrepreneurs seek investment from angel investors, venture capital firms, or other sources to finance the initial operations and development of their business idea.

Source material: Wikipedia - "Venture capital". Adapted and summarized for DiscoverScroll. Original contributors are credited through the linked Wikipedia article. Read original on Wikipedia. CC BY-SA 4.0. Changes were made from the original.