What is Venture Capital?

You may have heard the term “venture capital” and may have wondered what the term could possibly mean. The term somehow sounds like the name of a financial institution of some sort, doesn’t it? Well, that’s not quite what venture capital is. If you have ever watched the television program “Shark Tank” and seen the likes of Kevin O’Leary, Daymond John or Barbara Corcoran, then you have a pretty good idea of how sourcing venture capital works. It is not a simple process but it is a viable financing option for some startup ventures.

In simple terms, venture capital is the capital or financial resources that are raised to fund a particular venture. In some cases, the capital comes in the form of sweat equity rather than cash. Usually, the term is associated with a new project or a startup, which typically involves a high level of risk.

Startups are sometimes faced with the challenge of raising capital for their business venture. In some cases, a new business may not have access to the regular capital markets and may have to seek capital elsewhere. This is where venture capital comes into the picture. There may be some wealthy investors who are willing to provide funding for startups if they recognize the potential for making attractive returns on their investment.

These investors are called venture capitalists or angel investors and they usually offer capital in exchange for investment returns and in some cases also a say in how the business is run. Many venture capitalists may sit on the board of directors. Investment banks and other financial institutions may also offer venture capital to startups. Usually, venture capital financing is a risky undertaking because the possibility of the business failing is higher for startups. Because of this, venture capitalists usually require higher than ordinary rates of return on investment.

• Note: This article does not claim to replace any professional investing advice. If you are interested in investing, please contact a professional counselor.