Dictionary / How companies make money
What Is Venture Capital?
Venture capital, or VC, is money invested in young, fast-growing startups in exchange for a slice of ownership. VCs hope a few big winners pay for all the losers.
How venture capital works
A startup needs money to grow but has little revenue and no profit, so banks will not lend. A VC firm invests in exchange for shares. Startups raise money in rounds: seed, Series A, Series B and so on.
How VCs make money
Most startups fail. VCs expect that. They make their money when one company becomes huge and goes public through an IPO or gets bought. One big win can return the whole fund many times over.
Venture capital vs private equity
VC buys small stakes in young companies. Private equity usually buys control of mature companies.
See it in real companies
Open a company to see what it sells and how it makes money.
Related terms
Private equityFirms that buy whole companies to improve and sell them.
IPOWhen a company sells shares to the public for the first time.
Hedge fundA private fund for rich investors that can bet in many ways.
Total addressable marketHow big the market could ever get.
Growth investingBuying companies that grow fast.
RevenueAll the money a company takes in from sales.