In finance, venture capital is investment capital provided to young or growing private companies in exchange for ownership.
Venture-capital investors typically fund businesses that may have substantial growth potential but also a high risk of failure. They usually receive preferred shares or another equity interest and may negotiate board representation, information rights, and protections against later dilution.
Unlike a conventional loan, venture capital generally does not require scheduled principal repayments. The investor seeks a future return through an exit, such as a sale of the company or a public offering. Because the investment is illiquid and risky, a portfolio may contain several unsuccessful companies alongside a small number of highly successful ones.
Venture capital is one part of the broader private-equity industry. Venture capital usually focuses on earlier-stage, high-growth businesses, while buyout funds more often acquire mature companies, sometimes using substantial debt. Founders also commonly raise angel investment before or alongside institutional venture capital.