venture capital

noun

Definition of venture capital

: capital (such as retained corporate earnings or individual savings) invested or available for investment in the ownership element of new or fresh enterprise

called also risk capital

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Other Words from venture capital

venture capitalism noun
venture capitalist noun

Examples of venture capital in a Sentence

Recent Examples on the Web

Wallace is the co-founder and managing partner of Fifth Wall Ventures Management, a venture capital firm that focuses on technology in areas like real-estate, construction, and hospitality. Rachel Epstein, Marie Claire, "What to Know About Emma Watson's Tech Boyfriend Brendan Wallace," 15 Jan. 2019 Growing wealth inequality and the increasing prestige of Silicon Valley has meant more and more money gushing into the region's venture capital firms. Timothy B. Lee, Ars Technica, "There’s a big problem with Elon Musk’s plan to take Tesla private," 9 Aug. 2018 Launched in 2006, BuzzFeed was among the leaders of a group of digital upstarts that were adroit with social media and rode a wave of venture capital investment to become magnets for digital audiences. Benjamin Mullin, WSJ, "BuzzFeed to Cut 15% of Its Workforce," 23 Jan. 2019 Although the companies have similar funding figures — Rover has $310.9 million in venture capital investment, Wag has $361.5 million — Rover is a much bigger business, with a valuation of $970 million to Wag’s $650 million. Chavie Lieber, Vox, "The startup world’s cuddly, cutthroat battle to walk your dog," 12 Sep. 2018 Wallace is currently Co-Founder & Managing Parter at venture capital firm Fifth Wall. Isabel Greenberg, Harper's BAZAAR, "Emma Watson Was Just Spotted Kissing a Tech CEO on Vacation," 17 Oct. 2018 Pete Flint, the founder of Trulia, has invested in real estate startups with his venture capital firm NFX. Jeff Andrews, Curbed, "This algorithm can find a buyer for your house," 12 July 2018 According to recent economic data, the city boasts 7,000 startups spread across all five boroughs, 134,700 tech jobs as of 2017, and $5.9 billion in venture capital investment, as well as the opening of the new Cornell Roosevelt Island tech campus. Patrick Sisson, Curbed, "Big cities courting big tech helped define 2018," 18 Dec. 2018 The angel investments precede a more formal $25 million funding round in 1999 from traditional Silicon Valley venture capital firms like Kleiner Perkins and Sequoia Capital. Verge Staff, The Verge, "Google turns 20: how an internet search engine reshaped the world," 5 Sep. 2018

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'venture capital.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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First Known Use of venture capital

1943, in the meaning defined above

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Last Updated

14 Feb 2019

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The first known use of venture capital was in 1943

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More Definitions for venture capital

venture capital

noun

Financial Definition of venture capital

What It Is

Venture capital is money for new, young, and/or small businesses that typically have little or no access to capital markets.

How It Works

There are three general types of venture capital: seed capital, for ideas that have not yet come to market; early-stage capital, for companies in their first or second stages of existence; and expansion-stage financing, for companies that need to grow beyond a certain point to become truly successful. Venture capital can also help a company merge with or acquire other companies.

Although some venture capital comes from private individuals, most venture capital comes from venture capital firms. These firms are often partnerships that obtain their investment funds from wealthy individuals, investment banks, endowments, pension funds, insurance companies, various financial institutions, and even corporations wishing to foster new products and technologies.

A venture capital firm must raise the money it needs to make investments in new businesses. This fund-raising is typically done by circulating a prospectus to potential investors who then agree to commit money to the fund. Once the venture firm has enough commitments, the firm may begin collecting or "calling" those commitments when it wants to make an investment. If and when the venture capital firm invests all of the fund's money, or if it simply wants to expand its investing activities, it may start another fund. Most funds have a fixed life, meaning they must make their investments within a certain period (usually about ten years). Venture capital firms may have several funds going at the same time.

The managers of many venture capital funds receive an annual management fee (usually 2% of the invested capital) and a portion of the fund's net profits (typically 20%). These fees compensate the managers for their expertise and the responsibility to help their investments become successful.

Typically, venture capitalists decide which companies to invest in by reviewing hundreds of business plans, meeting entrepreneurs and company managers, and performing extensive due diligence on investment candidates. They are very selective because they are seeking opportunities in which their investments will grow rapidly and provide a successful exit within a certain timeframe. When they do make a decision to invest, venture capital firms typically purchase a company's preferred stock and/or lend money to the company.

One of the most common and controversial characteristics of venture capital funding is that venture capital firms usually take active management roles and board seats in the companies they invest in. This often means that entrepreneurs give some control over their businesses to venture capital firms, who usually own a portion of the company (in some cases, controlling interest). However, venture capital firms can also provide crucial managerial or technical expertise, particularly in areas where the entrepreneur is less confident. This is especially the case when the venture capitalist specializes in the entrepreneur's industry or niche.

An important part of a venture capital investment is the exit, or the venture capital firm's plans for selling its investment in a company. Usually the exit, also known as the harvest, takes place anywhere from three to ten years, often via an initial public offering or through the merger or sale of the company.

Why It Matters

Venture capital is an important and necessary form of investment because it fosters entrepreneurship, especially in high-tech and other innovative industries. This in turn promotes job creation and economic growth. At the investment level, venture capital can be tremendously lucrative because it allows investors to get in at the ground level of what could be some of tomorrow's leading companies.

However, venture capital is not without risk. In fact, it is one of the riskiest investments available because many new companies fail or underperform. Venture capital firms anticipate this by diversifying their investments and hoping that their successful investments more than compensate for their losses. Nonetheless, venture capitalists must be willing to take significant long-term risks for what can be high returns.

Source: Investing Answers

venture capitalist

noun

Financial Definition of venture capitalist

What It Is

Venture capitalists provide funding (called venture capital) to start-up companies which they see as promising investments, but which otherwise are unable to obtain business loans. Venture capitalists are active primarily in the technology sector.

How It Works

Venture capitalists look to invest money in start-up companies which they believe have the potential for high returns. For this reason, venture capitalists grant venture capital generally given two conditions: that they have ownership in the company commensurate with the share of venture capital they provide (often 50% ownership or more); and that they receive a rate of return on their invested money commensurate with the risk.

If the venture capitalist feels that his investment in a company will yield consistent, high returns year after year, he is likely to maintain his share of ownership in the company. In many cases, however, venture capitalists maintain their ownership of a company only until the company is ready to issue an IPO (Initial Public Offering) or be sold to a buyer. In this instance, the venture capitalist sells his ownership for the proceeds from the IPO, or to the buyer as the case may be. This subsequently allows him to take the money he's made and look for new prospective start-up companies in which to invest.

To illustrate, suppose Bob, a venture capitalist, meets with the directors of start-up company XYZ. Having seen XYZ's current operations and long-range business plans, Bob decides to invest $1 million in XYZ. In return, Bob is automatically granted 50% ownership in the company as well as a 25% annual return on the money he has invested in exchange for the risk he knows he is taking. One year later, XYZ has successfully reached a level of productivity and positive cash flow that allows it to survive on its own. The board of directors, along with Bob, decides it would be best to raise funds for continuing expansion through the issuance of an IPO. Bob subsequently receives $1.25 million (the $1 million he initially invested plus the 25% return).

Why It Matters

Venture capitalists can serve start-up companies by readily providing them with funding that a bank might not. The advantage for a start-up company is that this option exists should a loan not be granted. The advantage for a venture capitalist is that by taking a risk and investing in an early stage company, he may gain very lucrative returns on his investment should the company succeed.  A secondary advantage is that he is entitled to an ownership stake in the company and, therefore, a voice in how the company is run.

Source: Investing Answers

venture capital

noun

English Language Learners Definition of venture capital

: money that is used to start a new business

venture capital

Legal Definition of venture capital

see capital

More from Merriam-Webster on venture capital

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