Venture Capital (VC) is a financing tool for companies and an investment vehicle for wealthy individuals and institutional investors. Wealthy investors like to invest their capital in startups with a long-term growth perspective. This capital is called venture capital and the investors are called venture capitalists, in other words, it is a way for companies to receive money in the short term and for investors to grow wealth in the long term.
Large Amounts of Capital Can Be Raised
Venture capital is a vital source of funding for high-growth startups across the globe and plays a disproportionately important role in spurring job creation and economic productivity. Most of the tech giants – Google, PayPal, Airbnb, Twitter, Facebook – all raised capital from venture capital firms and generated exponential return on investment within a few years.
Venture capital is available in amounts as small as $100,000 for a seed stage and more than $25 million for more mature startups in larger markets. A successful VC for a top-tier firm can expect to earn somewhere between $10 million and $20 million a year. The very best make even more. Meanwhile, there’s also usually a management fee of 2% or 2.5% that venture capital firms charge their investors.
High Returns on Investment
Venture capital investments in early stages offer opportunities for high returns. Investment opportunities that entail high risks also can provide a higher return on investments.
Investing in a Venture Capital Fund
Venture capital funds raise money from investors (limited partners) in pools of capital and then invest this in companies that are typically either new or in the initial expansion phases of their lifecycle. Venture capital funds typically take minority stakes and look to help their investments grow and succeed.