Venture capital

Venture capital is money invested in young, high-growth-potential private companies, usually startups, in exchange for equity. Unlike private equity, which typically buys established businesses, venture capital backs unproven companies at an earlier and riskier stage.

Most venture-backed startups fail to return the investment, but the model works because a small number of big winners can generate returns large enough to cover the losses on everything else. Venture capital firms typically invest across multiple funding rounds as a company grows, before an eventual exit through an IPO or acquisition.