What is venture capital? How startups raise money
Venture capital firms invest in young companies in exchange for a share of ownership, hoping a few become very large. How VC works, in plain words.
Venture capital (VC) is money that investment firms put into young, fast-growing companies in exchange for a share of the company (equity).
How it works
- A VC firm raises money from investors, called limited partners.
- It invests that money in many startups.
- Most of those startups will fail or stay small.
- A few may grow very large, and those few pay for the rest.
What VCs look for
- A big market
- A strong team
- Early signs that customers want the product (traction)
What founders give up
- Part of the ownership
- Often a board seat and some control over big decisions
Is VC right for every business?
No. Many good businesses grow from their own profits instead. That is called bootstrapping.
Related
- Seed, Series A, Series B: funding rounds explained
- Bootstrapping vs raising money