Venture Capital
A form of private equity financing provided to early-stage, high-growth startups in exchange for equity stakes.
What is Venture Capital?
Venture capital (VC) is a form of private equity financing in which investors provide capital to early-stage startups with high growth potential in exchange for equity stakes. VC firms raise funds from limited partners (institutional investors, family offices, high-net-worth individuals) and invest in companies from seed stage through later growth rounds. Because most startups fail, venture returns follow a power-law distribution: a few big successes (like Google, Facebook, or Uber in a portfolio) must generate returns large enough to offset many losses. VC investors also provide mentorship, networks, and operational support beyond capital. Key metrics include pre-money valuation, post-money valuation, dilution, and multiple on invested capital (MOIC).
Example
A VC firm invests $5 million in a SaaS startup at a $20 million pre-money valuation (25% ownership). Over four years, the startup grows to $200 million in revenue. In an IPO, the company is valued at $2 billion. The VC's 25% stake (diluted to 18% after later funding rounds) is worth $360 million — a 72x return on the $5 million invested.
Source: NVCA — Venture Monitor