Full Definition
Venture capital (VC) is a type of private equity financing where professional investment firms provide funding to startups and early-stage companies that demonstrate high growth potential. VC firms raise capital from limited partners (LPs) — including pension funds, endowments, and wealthy individuals — and deploy it into promising companies.
In exchange for funding, VCs typically receive equity stakes and often take board seats to actively guide company strategy. VC investments usually range from $1 million to $100+ million depending on the stage.
How Venture Capital Works
- VC firms raise funds from institutional investors (LPs)
- General partners (GPs) identify and evaluate startup opportunities
- Investments are made across stages from seed to late-stage
- VCs provide strategic support, board participation, and network access
- Returns are generated through exits (IPOs or acquisitions)
VC Fund Structure
A typical VC fund has a 10-year lifecycle: 3-5 years of investment, followed by 5-7 years of portfolio management and exits. The standard fee structure is "2 and 20" — a 2% annual management fee plus 20% of profits (carried interest).
Startup Funding Stages
Real-World Example
A VC firm invests $5 million in a Series A round for 20% equity in a SaaS startup growing 15% month-over-month.
Frequently Asked Questions
How does venture capital work?
What percentage do venture capitalists take?
How do I get venture capital funding?
What is the difference between VC and PE?
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Related Terms
An investor who contributes capital to a venture fund but does not participate in day-to-day management.
The managing partner(s) of a venture fund who make investment decisions and manage the portfolio.
The share of investment profits (typically 20%) that fund managers receive as performance compensation.
The first major institutional venture capital funding round, typically following seed funding.
The comprehensive investigation and evaluation of a company before finalizing an investment deal.
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